Spread-betting on a low price stock - Why not?

Dr Pepper

Hello,

I'm looking at *BoI (for example) at 19c today. If I make a paddypower €20 per cent bet, the most I can possibly lose is €380 - Is that correct? Does a 0c share price even occur? If so, I could easily live with that potential loss. On the other hand, if it rises by 20-30 cents on the back of some good news in the near future (although I'm not sure what that news could be at this stage :rolleyes:), I could stand to make a reasonably good profit in the short-term, or if I hold on to that position for a few years, I could be making €2,000 for every euro the price rises. (All for an initial €380 risk).

I suppose my question essentially is "Where's the catch?". It seems as though 0c is acting as a safety net beyond which the price will not go (a luxury which didn't exist at €9.00). Without wanting to labour the point, there is very limited risk but the reward is not particularly limited (in the long-term anyway).

Am I making sense here or is there a flaw in this newbie logic?

The catch may be that the bank could be nationalised any day now so, on that point - What happens to a spread-betting position when a bank is nationalised? I notice that Anglo are at 20c since they were nationalised. Does this mean that all positions were automatically closed at 20c at the time?

Thanks!

Before anybody points out the obvious, I know this question takes no account of the actual company behind the stock as such (which seems to be something of a mortal sin in investment circles :pac:)... BUT, since nobody seems to have any idea what will happen to these banks, it seems reasonable to look at the equation from another angle!

*[to mod], I know this could theoretically have gone into the BoI thread but it's not specifically about BoI, as much as spread betting on low-priced shares in general (Plus the BoI thread is a very ugly one if you don't mind my saying :P). Please move it if you disagree!

strmin

There is overnight finance on spreads.I don't know how much exactly but it might be a few euro per 20€/point bet.

Dr Pepper

PaddyPowerTrader call this a "Rolling Trade Transaction" and it works out to be only about 5-6c per night in the above example (so I could live with that!).

techguy

*Subscribed*

Interesting post OP..

I've been noticing that over the last few weeks the BOI share price has been trending down but maybe 1-3 times in a week it closes up around 3+%..

Would be cool, if you could use your theory and trade on this..

Idu

techguy wrote: »

*Subscribed*

Interesting post OP..

I've been noticing that over the last few weeks the BOI share price has been trending down but maybe 1-3 times in a week it closes up around 3+%..

Would be cool, if you could use your theory and trade on this..

Serious flaw in your thinking seeing as a 1c price movement equals about 5% these days

techguy

Idu wrote: »

Serious flaw in your thinking seeing as a 1c price movement equals about 5% these days

Whats you're point? Are you saying that they can't close up 1c on the previous day??

Idu

you would need to be betting a huge amount a cent to make any money so the risk would be way to big

Roonbox

I think you'll get bank of Ireland for less than 19c in the next 6 months -

Compak

I think if BOI are still around in 6 mths he will of made 400%.

Whats the big deal its only 380 euro and as he posted he knows he can lose it all.
Plus not possible as BOIs fair trade on nationalisation may even make him money though he would be waiting a long time.

He realises its a bet.

Sweet lord I wont be mentioning my 50/1 tip for cheltenham. appears many would find fault with it though I know the risk

Idu

Compak wrote: »

He realises its a bet.

Sweet lord I wont be mentioning my 50/1 tip for cheltenham. appears many would find fault with it though I know the risk

This is the investment forum. There's a gambling forum somewhere else on Boards. I dont think anyone has questioned his idea anyway

Compak

Idu wrote: »

This is the investment forum. There's a gambling forum somewhere else on Boards. I dont think anyone has questioned his idea anyway

Im sorry we are talking about BKIR here.

A bank expecting 6 billion losses though realistically looking at 10, pays no dividend , cant get an outsider CEO, whose investment into has been picked by Buffet as one of his mistakes, has a new CEO with a terrible record, has no international reputation is trading sub 200million euro and is in a country where everyone knows the government has a guarantee it can not afford.

No sir that is a gamble.

Plus I think you will find "spreadbet" is gambling.

Dont get me wrong I think the Irish banks will survive but sweet lord if its not a punt at this price what is.

jhegarty

Roonbox wrote: »

I think you'll get bank of Ireland for less than 19c in the next 6 months -

You do mean a 19c a share , don't you ?

Idu

Compak wrote: »

Im sorry we are talking about BKIR here.

A bank expecting 6 billion losses though realistically looking at 10, pays no dividend , cant get an outsider CEO, whose investment into has been picked by Buffet as one of his mistakes, has a new CEO with a terrible record, has no international reputation is trading sub 200million euro and is in a country where everyone knows the government has a guarantee it can not afford.

No sir that is a gamble.

Plus I think you will find "spreadbet" is gambling.

Dont get me wrong I think the Irish banks will survive but sweet lord if its not a punt at this price what is.

Fair points. Its a poor investment and a decent risk/reward bet.

luckystrike23

i assume you are referring to penny stocks?

if so the catches are:

1. not many spread betting providers offer penny stocks.

2. penny stocks often lack liquidity meaning that price tend not to change for a long time and then jump up or down all of a sudden. if you are unfortunate you might find it impossible to get out if you really need to do so urgently.

3. those that do often do so with wider bid-offer spreads (i'm meaning some 15% bid-offer spread here!!) If there is a wide spread in the wholesale market where the spread betting company places your trade, this will be reflected in the spread that they quote.

for more info checkout http://www.financial-spread-betting.com