Cramer: How to use a Grexit to your advantage

What does Rite Aid have to do with Greece?
What does Rite Aid have to do with Greece?   

Jim Cramer flipped through his tweets this morning, and saw an investor asking what the heck Rite Aid has to do with Greece. The answer? Everything, because this tiny country has managed to drive all stocks lower.

"Greece the country has a huge impact on Rite Aid the stock," Cramer explained. "That's because stocks trade together in line with Europe. No hedge fund manager can resist making a bet that if Greece decides to default on its obligations, there will be severe repercussions all over the world."

Basically, it all boils down to the fact that if Greece blows up and the hedge funds missed it, they will look like idiots. (Tweet This)

Cramer knows that hedge funds are aware that the European economy will face a severe slowdown if Greece goes under. He also suspects that the Greek government has no idea the amount of pain it will inflict on its people if it gets kicked out of the Eurozone.





Pedestrians walk past a Rite Aid store in Oakland, Calif.
David Paul Morris | Bloomberg | Getty Images
Pedestrians walk past a Rite Aid store in Oakland, Calif.

And if a so-called Grexit were to occur, those holding debt will be hurt and European business will slow down or freeze, which will pinch U.S.-based companies that do business overseas. Ultimately, this will trigger investors to sell S&P futures in the U.S., and earnings estimates will come down both due to the strong dollar and weak orders.

Of the 30 stocks in the Dow Jones industrial average, 27 have a business that is affected by Europe; a huge percentage of the S&P 500 is also involved.

So, while Rite Aid isn't a part of the S&P 500 and it has no business overseas, its competitors do. Walgreens Boots Alliance does have overseas sales, and both it and CVS are members of the S&P 500. That means they will both be taken down by the Greece debacle.

Would it really make sense for Rite Aid stock to go higher, if its two biggest competitors are getting a beat down from Greece? Cramer thinks that is completely inconceivable.

"So, back to the original query, what does Greece have to do with Rite Aid the stock? The answer, sadly, is everything. I say sadly because it sure wasn't like this 30 years ago before we had futures," Cramer added.

But that doesn't mean you cannot turn this mess into your own opportunity.

If Greece defaults, that is a one-day event. It won't keep defaulting the next day or the day after that. So while the market would take a hit on the first day that the country defaulted, Cramer anticipates it would also bleed into the second day, causing a selloff.

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Then, the third day will only impact those highly leveraged hedge funds that played the wrong side of the trade. Basically, they would sell good stocks that had nothing to do with Greece in order to fund the stocks that were hurt by Greece.

"My conclusion? The irrational collateral damage to stocks that are unrelated to Greece but are pulled down in its vortex should be bought near the end of day two, after the debacle occurs, and then doubled down on day three," Cramer said.

That means if you want to buy 200 shares of Rite Aid—buy 100 on day two of the selloff, and 100 shares on day three. It couldn't hurt to wait to see if a Greek-induced sale happens. Otherwise, you have an opportunity to buy a good stock into weakness.

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