It is unlikely that anyone is unaware of Tesco’s, the grocery chain, and when trading or spread betting it is always useful to have a familiarity with the company. Tesco’s ranks as one of the largest of its type in the world, and is one of the few that researchers say appeals to a whole range of clientele, rather than particular market sectors. It was founded in 1919 from a market stall in Hackney, and went public on the stock market as early as 1947. It wasn’t until 1956 that the now familiar self-service store arrangement was first seen, however.
Tesco’s is an exceptionally strong player in its market sector, with a whole range of store sizes and types to appeal to different demographics and localities. It now includes far more than just groceries, with diversification into clothing, electronics, CDs and DVDs, financial services and telecoms.
However, 2011 was an extremely poor year for this sector, with sales down almost across the board, and you can see this reflected in the dismal weekly chart above.
Tesco’s has expanded dramatically in the last couple of decades, with many acquisitions of different supermarket chains, taking on petrol stations in conjunction with Esso, and growth into other countries, including the USA. Overall, it still seems to be pursuing a winning formula. It has been investigated by the Office of Fair Trading, which alleged collusion and price-fixing with other supermarket chains, and has been criticized for its tax evasion practices.
Looking at the price chart, you can see that the volatility, with certain notable exceptions, has not been great, which makes this a relatively safe prospect for spread trading. Following the indications of the MACD lines below would have resulted in profitable trading, on the whole. If you are spread betting on Tesco, you might find it safer to stay away from a bet when the quarterly results and dividend are announced, as this will often create a sharp move.
Tesco Rolling Daily Spreadbet
As long as you stay away from dividend and profit announcements, you are likely to find that the Tesco stock prices are relatively slow-moving, perhaps no more than 10 or 20 points a week. The current price for a rolling daily bet is sell at 339.66, buy at 340.34. You may consider that the stock price will increase, and decide to place a long spread bet at the higher price, choosing a stake of £10 per point.
If you are correct, and the price goes up, then you may find that you are cashing in your bet when the quote gets up to 386.25 – 386.93. During the time you held the bet open, your account may be charged interest each night, but this is usually not a significant amount. Working out how much you have won, the bet was opened at 340.34 and you closed it at 386.25. The point difference is therefore 45.91 which for your chosen stake amounts to £459.10 that you have won.
If on the other hand the price goes in the opposite direction, putting you in a losing position, you should be prepared to accept your loss and exit the trade before the amount becomes too large. Say you closed the bet when the quote was 303.94 – 304.62. Your starting price was again 340.34, but this time you exited at 303.94, a point difference of 36.40. For your stake, this would amount to losing £364.
Many spread betters decide to use a stop loss order, which they place when they open the bet, which means that a losing bet will be closed when it reaches a certain level, rather than waiting for you to notice that the price has dropped. If you had used one in this case, you might find that the bet was closed faster, saving you some money. Perhaps it would close at 315.12 – 315.80. Closing at 315.12 from a starting price of 340.34 means that your losses were kept down to 25.22 points, or £252.20 in this case.
Looking at the price chart, you will see that the Tesco stock price, with occasional exceptions, takes some time to move significantly. Therefore you might decide to use futures based prices, intending to hold onto your spread bet for some weeks or months. With futures based spread bets, there is no daily maintenance rollover charge. The current quote for Tesco’s for the far quarter, nine months away, is 340.50 – 344.61. You decide that the price will go up, and stake £7.50 per point.
Should this bet prove correct, you may find that the price goes up to 376.25 – 379.53, and you decide to close the bet and take your profit. As this was a long bet, it went on at the buying price of 344.61 and closed at the selling price of 376.25. Therefore you have gained 376.25 -344.61 points, or 31.64 points. Multiplying by your stake, that amounts to winnings of £237.30.
But bets do not succeed all the time, and you must be prepared to close and accept the loss when necessary. Perhaps the price goes down to 321.62 – 365.37, and you decide it is time to call it a day and close the spread bet. You have lost 344.61 minus 321.62, or 22.99 points. For your chosen bet size of £7.50 per point, your losses are £172.42.
To save you having to keep tabs on the market, you may choose to place a stop loss order when you open the bet in the first place. This requires your spread betting provider to close a losing bet if and when it reaches a level that you set. With this facility, you might have found that your losing bet would be closed earlier at a price of 326.90 – 330.13. Calculating your losses this time, 344.61 less 326.90 is 17.71 points. The use of a stoploss order kept your losses down to £132.82.