Spread Betting AstraZeneca | Trade AstraZeneca
AstraZeneca plc is one of the big pharmaceutical companies headquartered in the UK. It was formed in 1999 from the Astra company in Sweden, and the Zeneca company in London. Zeneca was an offshoot from the well-known ICI, which divested itself of pharmaceutical products in 1993. AstraZeneca has been reckoned to be the seventh-largest pharmaceutical company in the world, judged by revenues but is currently having some profit issues, and shrinking. The latest phase of job cuts involves 12% of the workforce, which amounts to 7300 people.
One of the possible problems is that a number of the drugs and medicines produced by AstraZeneca have reached a stage where a number of its patents are expiring, and this means that the marketplace is open to having cheaper generic products competing with them. The research and development is still headquartered in Sweden, although the largest research laboratory is in the UK. There is a dearth of new products, which will hit further at the declining profitability. Another problem is increased pressure to lower prices resulting from general medical cost cutbacks. AstraZeneca has tried to reinvigorate its business by means of acquisition with limited success: it’s biggest acquisition, its $15 billion takeover for MedImmune in 2007, hasn’t yielded much financial benefit to-date while the last $1.3 bullion splurge in Area earlier this yet has yet to add value to the bottomline for the drug’s giant.
Despite this somewhat negative position, AstraZeneca is still figured to be the 12th largest company listed on the London Stock Exchange with a market cap of £40 billion. It is actively looking into cancer research, and cholesterol drugs to help with cardiovascular disease. One way for AstraZeneca to escape its doldrums, which may happen in the near future, is for it to actively search for further acquisitions of companies with patented drugs. It is also forging more alliances with academic institutions in the hope that that will stimulate new developments. It is certainly not lying down and accepting the decline in its fortunes, and has announced aggressive plans to maintain its dividends to shareholders.
From the fundamentals expressed above, you can see that AstraZeneca may not join in the general upswing in health spending, and benefit from this still growing industry. It has found itself in an awkward place, with several drugs coming off patent in the next few years, and little to replace them as big money earners. It is likely that the next few years will result in swings both up and down, as public sentiment comes and goes. For the spread better, as opposed to the investor, this is no problem. When share prices fall, they tend to fall more quickly than share prices rise, and therefore short bets are likely to be more profitable sooner.
AstraZeneca is in a news driven industry, with announcements of latest drugs, competitors, etc. able to move prices significantly. For instance, the latest round of layoffs resulted in an immediate 14% loss in share value. Its new CEO Pascal Soiriot has decided to shelf the AstraZeneca plc’s $4.5 billion share buyback programme on his very first day in the job which in itself delivers a message that the company still believes that there are opportunities out there. For this reason, you need to take care to learn about the way the price can move before jumping in with large bets. Announcement driven price moves are not subject to the limitations of the day-to-day fluctuations, and therefore you should have a clearly defined way to limit your losses, should something unexpected happen and you find yourself holding a losing bet. While allowing regular volatility, you must position your stop loss so that you do not get caught by a major swing in price.
Spread Betting on AstraZeneca
AstraZeneca is a major pharmaceutical company which has found itself in some economic difficulties recently for various reasons. Therefore you will see that the price is volatile, and often as likely to go down as up. The current price for a rolling daily spread bet is 2854.1 – 2860.4, and this has recently fallen due to the announcement of further layoffs.
If you think that more bad news in the near future for the market and that the price is likely to continue falling at present, then you may want to place a sell spreadbet, or go short, staking say £20 per point. As this is a sell bet, you should probably not incur any charges overnight when the bet is automatically roll over. Say the price fell to 2763.2 – 2769.5, and you decided to close your bet and take your profit. You can work out how much you won like this: –
- Your short spread bet was placed at 2854.1
- Your short bet closed at the buying price of 2769.5
- Therefore you gained 2854.1-2769.5 points
- This is 84.6 points
- Your bet was for £20 per point
- So you won 84.6 times £20
- You won a total of £1692
Sometimes the bet will lose, when the price goes in the opposite direction to the one you anticipated. Say the price goes up to 2883.7 – 2890.0, and you decide to close your bet and accept your losses. This is what you lost: –
- Your short spreadbet was placed at 2854.1
- Your short bet closed at the buying price of 2890.0
- Therefore you lost 2890.0-2854.1 points
- This is 35.9 points
- Your bet was for £20 per point
- So you lost 35.9 times £20
- Your total loss was £718
As a second example, assume that you decided AstraZeneca was going to go up, and placed a long bet at the original price of 2860.4, for, say, £8 per point. As mentioned above, you may be charged a little amount each night when the bet is rolled over, but usually this does not amount to much if you only hold your bet for a few days or weeks. Perhaps the price goes up to 2963.5 – 2969.8, giving you a win, and you decide to collect.
- Your long bet was placed at 2860.4
- It closed at the selling price of 2963.5
- Your bet made a total of 2963.5 less 2860.4
- This is 103.1 points
- You bet £8 per point
- Therefore you won £824.80
Even the best of spreadbetters or traders have losing trades. What distinguishes them and allows them to make money overall is their ability to close the trade quickly, and minimize their losses. Say the spread betting quote went to 2831.5 – 2837.8, and you decided to close your bet and accept your losses.
- Your long bet was placed at 2860.4
- It closed at the selling price of 2831.5
- You lost a total of 2860.4 less 2831.5
- This is 28.9 points
- You bet £8 per point
- Therefore you lost a total of £231.20
Do remember that as a leveraged product, financial spread betting comes with high levels of risk and can result in losses that exceed your initial deposit.
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