Spread Betting Asos Stock
What a great success story Asos [ASC:AIM] has been. Its growth is on a tear, and the online fashion and beauty leader shares are rising accordingly as the retail spend continues its shift away from high street stores and towards the internet. Asos is an online fashion clothing retailer that has caught the imagination of the public in particular for its stellar growth and for proving the merits of the internet retail model. International sales now account for more than 65% of the £1.6 billion cap’s revenues and the launch of further own-country websites will provide further growth. The Asos flagship website is now the second-most visited fashion site globally among its target 15 to 34-year-old demographic. Rising from nowhere in 2008, the shares have topped £24, and after a little dip in are now just under £20 each. Its £1.6 billion market capitalisation represents an 8,120% improvement on its £15 million valuation at IPO!
Despite a slowing UK economy, the menswear, womenswear and accessories retailer continues to trade strongly generating rapid and profitable growth around the world. The price has risen so rapidly because of its expansion, with Asos registering high double-digit growth every quarter. It is presently building a presence in the USA and China while Japan, Brazil and Russia all offer exciting growth potential. From an investor’s point of view, the ratios are high, with a much higher P/E ratio and even P/B ratio than you would normally expect in this sector. This often suggests that the shares are overpriced – a high price to earnings ratio implies the price is high and/or the earnings are low – but in this case is explained by the fact that the growth is so rapid that the stock price appears to be justified, at least to the average investor. ASOS whose clothing is aimed to appeal at fashion-forward 20+ keeps growing with some 4.4 million ‘active’ clients in 160 countries.
On the downside ASOS is investing heavily in international pricing and warehousing and technology infrastructure which will mean flat profits in the new financial year (2015). For the spread better, who approaches the market from a different angle, Asos can be an opportunity in either direction. While the investor depends on increasing share prices, and the spread better can benefit from them too, if it leads to a bubble in the stock price the spread better can always place a short bet and profit from any price crash.
This is not to say that there is any sign of weakness in the Asos gains. The shares are still a strong buy with many financial advisors, so in all probability you would as a spread better be placing long bets and catching the upward trends, exiting out only to avoid losing during the retracements. A more aggressive strategy would be to identify the retracements and attempt to bet those down, too.
With such a company, you may be looking for a longer-term spread bets, and taking out futures based bets for times when it appears that the company is on the rise. If you are cautious, then you may choose to stay away from the market when it comes near to profit announcement time. Any over or underperformance compared with that which is expected by the market would cause the share price to move, and without knowing the actual numbers in advance it is hard to guess in what direction it will go.
If you use standard technical analysis techniques, you should find that they give you warning of when the shares become overbought, and subject to a correction, which is when you should exit your long position. The share prices should act quite rationally and respond favourably to analysis. If you keep an eye on the general retail news, this should tell you when you can expect the sector as a whole to be tested. During times of economic depression, spending in general will be down, but the better performing companies such as Asos are usually able to keep up a good performance, with the lesser companies that are not so highly regarded being the ones that are suffering.
Spread Betting on Asos
The online retailer Asos is acting strongly, and growing aggressively. Only a couple of years ago the price was below 400 (£4), but the current spread betting quote for it is 1849 – 1859 for a rolling daily bet. If you have detected a moment of weakness, when you think there will be a retracement, then you might want to place a sell bet for, say, £5 per point.
Say the price does retrace, to 1736 – 1746, you close your bet and take your profit. Here’s how you work out how much you have won: –
- Your bet was placed at 1849
- Your bet closed at 1746
- The number of points you gained is the difference between these
- 1849 less 1746 is 103 points
- Your bet was for £5 per point
- Therefore you have won £515.
If instead of going down, the price continued to rise after you placed your bet, then you would have to close your bet and accept your loss. Say the price went up to 1867 – 1877 before you closed your bet.
- Your bet was placed at 1849
- Your bet closed at 1877
- The number of points you lost is the difference between these
- 1877 less 1849 is 28 points
- Your bet was for £5 per point
- Therefore you have lost £140.
You may be more interested in a futures based bet on Asos, betting that the growth in sales will continue and push the share price up. The current quote for a bet seven months away is 1862 – 1874. You place a long bet for £12 per point.
In this case, say that the price went up to 2001 – 2013, and as this was near a previous resistance level, you decide to close your bet and take your profit. Your long or buy bet was placed at 1874 and closed at 2001. The difference in these prices is 2001-1874, which is 127 points. Multiplying 127 times the stake of £12 per point, you find you have won £1524.
Traders have a saying “Cut your losses”, which means that you should not stay in a bet or a trade longer than you need to see that it is going the wrong way. In practice, you will decide what level this is before you even place the bet, as it is very difficult to make an impartial judgment when you are in the bet and money is on the line. Perhaps for this long bet you decided that you would have to close for a loss if it dropped to 1830. Considering how much you would lose if it dropped that far is one of the considerations you should have when deciding what size of bet to make in the first place.
Say the price dropped to 1826 – 1838, and you closed the bet. In this case, your bet was placed at 1874 and closed at 1826, a difference of 48 points. At your chosen stake, you have lost £576.
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