Vodafone is a very familiar name to many people. The mobile sector is heavily influenced by trends, making it fairly volatile for spread betting. Vodafone is an international telecommunications company headquartered in the UK, and is the world’s second largest mobile telephone company, second only to one in China. It operates in more than 30 countries with arrangements with partners in other countries, including a 45% share of Verizon Wireless which is the largest mobile company in the US.
Vodafone sprang out from Racal Electronics in 1985, and Racal owned the company until it went public in 1988. However, it did not separate from Racal’s stewardship until 1991. Through a series of mergers and acquisitions, Vodafone has become the megalith which it is today. There has been controversy on the way, including a “negotiated” tax bill for billions of pounds sterling which was heavily reduced by a tax official who subsequently went to work for Vodafone.
This monthly price chart shows a good deal of volatility, with a particular slump during the time of the global economic crisis. Despite the general recovery from the crisis continuing through 2011, the mobile telecommunications sector only added 4% at that time, which was worse than that of many other sectors and the market in general, which increased 22%. Thus in the long term it appears that Vodafone has some room for growth, particularly as it trades at a minimal nine times future earnings, very low for the sector. As can be seen, it has still not returned to the pre-crisis level, which was nearly 200.
For the spread trader, however, these long-term trends are not so significant as the short-term outlook, and you need to consult the technical indicators to get a better idea of when and which way to bet. Nonetheless, it is usually reckoned better to trade with the prevailing trend, therefore you would treat indications of a long position more favourably than going short.
Vodafone Rolling Daily
The current price for a rolling daily spreadbet on Vodafone is 177.42 – 177.83. If you thought that the mobile data and telephone company was going to increase in value, then you could place a long bet at the buying price of 177.83, and might stake £25 per point.
As you have a rolling daily bet, there will usually be an account adjustment each evening when the spread bet is rolled over to the next day. In effect, this covers interest for the share value of your bet, as if you had bought the stock using borrowed money. Usually it does not amount to much.
Given the volatility of the stock, you might easily find that the price goes up to 205.61 – 206.02, and decide then to collect your winnings. To work out how much you have won, you first calculate the points in your favour. Your bet opened at 177.83 and closed at 205.61, for a gain of 27.78 points. Multiplying by £25, your stake, you would find that you had won £694.50.
However, despite your best endeavours you might find that the stock goes down in price after you place the bet. Perhaps you would decide to cut your losses when the price dropped to 158.36 – 158.77. This time your starting price was 177.83, but your closing price was 158.36, a loss of 19.47 points. Unfortunately, this means that you have lost a total of £486.75 on this particular bet.
Many spread traders do not have time to keep watching the market in case their bet becomes a loser, so they place a stop loss orders when they take out the initial bet. This requires the spread betting company to close a losing bet for you. If you had used a stop loss order, you might find that your bet was closed out when the price dropped to 163.46 – 163.87. This time you have lost 177.83 minus 163.46 points, 14.37 points, which for your chosen stake amounts to £359.25.
Taking a slightly longer view of this trade, you may choose to place a futures based spread bet, currently quoted as 178.06 – 178.78 on Vodafone for the nearest quarter. You choose to bet that the stock will lose value, and stake £12 per point. This bet will go on at the selling price of 178.06.
After a time, you note that the price has indeed dropped, and decide to cash in your bet when the spread betting company is quoting a price of 142.53 – 143.11. As it was a short bet, it will close at the buying price of 143.11. The difference between the opening and closing prices, 178.06 and 143.11, is 34.95 points. Multiplying by your stake, you would have won £419.40.
Now that was the ideal scenario, but many times you will find that the price does not go in the direction that you anticipate, and you must be prepared to close the bet for a loss before the amount becomes too large. Say the price went up, and you closed the trade when the quote was 199.21 – 199.68. Working out what you lost, the spread bet opened at 178.06 and closed at 199.68. This calculates out to 21.62 points, which for your chosen stake amounts to £259.44 lost.
One way to try and contain your losses, particularly if you do not have time to watch the markets all day long, is use a stop loss order. This instruction to your spread betting broker works to close your bet if and when a certain level of loss is reached. If you had used one here, you might find that the bet would close when it reached a level of 186.92 – 187.53. This time your loss is from 178.06 to 187.53, or 9.47 points. For the size of bet you placed, this would cost you £113.64.