Passage of Greek Austerity Creates Favorable Trading Opportunity

On Wednesday, Greece's parliament approved an austerity plan which may help the country control its debt problem.

The austerity plan made it through parliament on a narrow four-vote margin.

The passage of the plan was necessary to secure a second bailout for the troubled Mediterranean state. On Tuesday, Reuters reported that European Union officials had threatened that Greece would face an immediate default should it not pass the plan.

Despite the ramifications of a default, the general Greek populace appeared to be opposed to the measure. Riots in the capital turned violent, as demonstrators clashed with police and set fire to buildings.

Will the austerity measure actually contain Greece's deficits and prevent a default? Many do not think so.

Market chatter over the inevitably of a Greek default has been extensive for quite some time. Recently, big name investors have begun to join in the speculation.

Last Sunday, billionaire investor George Soros stated that the Greek economy was on the verge of economic collapse, according to Guru Focus.

After the passage of the vote, the EUR/USD pair traded higher, possibly on speculation that risk within the Euro Zone had subsided in the wake of the vote.

Still, with Greek riots intensifying, perhaps now is a good time for investors to take a contrarian position.

Action Items

Bullish: Traders who believe that the austerity measure will allow Greece to get its finances in order might want to consider the following trades:

• Buy WisdomTree Dreyfus Euro ETF (NYSE: EU) in a long play on the euro currency. If Greece stabilizes, the risk of a Euro Zone collapse may dissipate, and the euro currency could rally with EU benefiting.
• Short PowerShares DB US Dollar Index Bullish (NYSE: UUP) in a short play on the U.S. dollar. If traders move into the euro currency, the dollar could suffer.

Bearish: Traders who believe that, despite the passage of the austerity measures, Greece will eventually default may consider taking positions in the following:

• SPDR Gold Trust (NYSE: GLD) is a long play on the precious metal. Gold has traditionally rallied in times of financial turbulence, and GLD may be a good buy if the situation in Greece worsens.
• SPDR Barclays Capital Long Term Treasuries (NYSE: TLO) in a long play on U.S. Treasuries. Treasuries have been seen as a safe-haven in the past, and investors may move into them should the turbulence in Europe worsen in severity.

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