It's All Greek To Me
It's Friday afternoon and after sifting through the load of information available, I decided to structure a possible trade for the rest of July. As can be gleaned by the title, the catalyst for this trade will be Greece.
I'm going to play this on EUR/CHF and EUR/JPY, and anticipate a 500-1000 pip downside move in these pairings. My catalyst will be the EuroZone Summit on Thursday, where the direction of private sector involvement will be decided, due to the market's sensitivity to Greek Debt Sustainability and Contagion jitters. I'm not looking at EUR/USD because the Republicans and Democrats can't seem to get their act together and it annoys me when positions get taken out on a spike.
To succintly put it, there are 6 possible outcomes for Private Sector Involvement.
It's Friday afternoon and after sifting through the load of information available, I decided to structure a possible trade for the rest of July. As can be gleaned by the title, the catalyst for this trade will be Greece.
I'm going to play this on EUR/CHF and EUR/JPY, and anticipate a 500-1000 pip downside move in these pairings. My catalyst will be the EuroZone Summit on Thursday, where the direction of private sector involvement will be decided, due to the market's sensitivity to Greek Debt Sustainability and Contagion jitters. I'm not looking at EUR/USD because the Republicans and Democrats can't seem to get their act together and it annoys me when positions get taken out on a spike.
To succintly put it, there are 6 possible outcomes for Private Sector Involvement.
- The EZ officials decide on a debt buy-back using bailout funds from the EFSF in the secondary market. While this may not necessarily be the best option to increase Greece's debt sustainability, it will not be construed as a default by ratings agencies.
- The EZ officials decide on a bond-rollover, swapping maturing bonds for ones of greater maturity, perhaps also cutting interest rates on the bonds paid. This option would be construed as a selective default by ratings agencies.
- The EZ officials decide on a debt buy-back by tenders; essentially placing a bid on the bonds in a take-it-or-leave-it fashion. Buying the bonds back at a discount from face-value would reduce the debt burden, but this would be construed as a default and a credit event by ratings agencies.
- The EZ officials decide on a bond exchange, where existing bonds are swapped for ones with lower face-values. This would also reduce the debt burden, but would be construed as a default and possible credit event if it isn't voluntary.
- The EZ officials decide on a bond exchange with credit enhancements which is similar to the above bond exchange, but with a few investor guarantees to make it more attractive. This would however increase the costs associated with the procedure, and would be construed as a default and a possible credit event if it isn't voluntary.
- The EZ officials bicker and squabble and cannot come to a consensus.
By looking at these scenarios, odds are roughly 70% that Greece may find itself in some form of default by the ratings agencies within the coming month, based on the outcome of that meeting. Additionally, all of the scenarios would be EUR negative barring the first one, which leaves this trade with a 70%+ chance of getting to 1R to mitigate risk.
I'm thus structuring the trade as a macro/scale in one, hoping to establish my feeder stakes soon so that I at least have a position ahead of the meetings.
Event risks include:
- The possibility of manipulation by either the SNB or BoJ
- The EZ summit having the the first outcome from above
Will be very interesting to see how July plays out.
Regards,
xXTrizzleXx