Don't allow the low volatility in August to make you complacent.
Most of the world is on vacation, even in the hard working United States. Kids are off from school, some hedge funds even shut down in August. Those who aren't on vacation, use this as a quiet time for planning so they are ready for a big September.
Fed preparation: US Banks told to make worst case scenario plans for markets collapse and here.
Although we've been reading a lot of alarming analysis and reports in the last six months, actually very little has happened regarding the markets. The euro (NYSEARCA:FXE) is down from its highs, but this is similar to the past five years volatility of the euro. Stock markets are up, but not greatly. Commodities are bullish, but mostly due to supply problems, such as a U.S. drought for the agriculturals and other mostly supply side factors for other commodities. Gold (NYSEARCA:GLD) is down, but fairly inactive, if you consider the sharp rises of past years.
Greek exit - Greece can decide to return to the Drachma and leave the eurozone. Bloomberg terminals already have pricing for "testing" XGD. This would cause extreme market volatility.
Greek default - Greece can default on their debt obligations, possibly a worse scenario than an exit, as the eurozone would be in the same currency (in the case of a Greek exit, the euro may even rise as the perception may be that the problem country is out).
Iran situation - Anything that happens in Iran with the miliitaries of Israel or the U.S. can send oil (NYSEARCA:OIL) skyrocketing and cause other market turmoil.
SNB Intervention - The Swiss National Bank can unpeg the EUR/CHF in response to political pressure from various EU officials. They can engage in other market operations with the CHF that could cause volatility. September 6 is the one-year anniversary of the recent SNB peg. Note that in modern Forex, it was the SNB, not anything else, that created an instant 5% jump in some Forex pairs.
If a significant market event does happen, the best strategies will capitalize on volatility, not individual market movers. EES has outlined a few of these strategies in previous SA articles such as "Strangle the Euro" and "A Put on the Euro to Parity". Any strategy that can profit on volatility is a good way to trade this situation, as any event will likely involve abnormal volatility.
Disclosure: The risk of loss in trading foreign exchange markets, also known as cash foreign currencies, or the Forex markets, can be substantial. Click here to read our forex risk disclosure.
I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.