Spread Bet on Sainsbury Shares | Trade Sainsbury
J Sainsbury’s (LSE: SBRY) is a supermarket chain with a great history and an uncertain future. You can see from the following monthly price chart that things have not really recovered since the global economic crisis.
The £6.5 billion cap [at January 2013] was founded in 1869 by John Sainsbury, and is still in theory called J Sainsbury PLC, though it is usually referred to as Sainsbury’s. It is headquartered in London, and in recent years has also entered the property and banking sectors. In 1922 it had grown to be the largest grocery retailer in the UK, it pioneered self-service retailing in the 50s and 60s, and was trading strongly in the 1980s. In this competitive sector, it was overtaken by Tesco’s and then by Asda. At the time of writing (January 2013) Sainsbury has a market share of around 16.7% and is still one of the big four supermarket chains; the others being Tesco, Asda and Wm Morrison.
The company went public in 1973, up until that time being wholly privately owned by the Sainsbury family, which at first retained 85% of the shares. The Sainsbury family still retain ownership of some shares through family trusts, but the largest overall shareholder is the Qatari royal family who own more than a quarter of the shares.
Building on its success, Sainsbury’s expanded into hypermarkets, do-it-yourself stores under the Homebase name, and tried to move into other areas such as Scotland, Northern Ireland, and the US. However, in the 21st century the company has been going steadily downhill and despite restructuring in 2005 the company still ending issuing three profit warnings for its fiscal year 2005. Sainsbury was essentially after continuing to improve its profit margins at the expense of the client experience. This mistake may sound familiar and the rest is history. In a nutshell, the company ended taking till 2010 for its earnings per share to exceed its pre-profit-warning level of 2004 helped in part by its penetration into online sales and its convenience store expansion.
On the upside, the company’s move into convenience stores has been a wise one and has helped to alleviate concerns over dramatic expansion plans. While convenience stores currently only constitute a small portion of selling area they tend to deliver sales growth much higher than that seen across the rest of the estate. The other main growth segment in the sector is online, where J Sainsbury is also enjoying strong performance.
The chart shows that there is not excessive volatility, therefore as a spread better you have more time to work out your trades, and do not have to react quickly. At the present time there is no clear trend, and this would not suit many trading strategies which are based on trend or counter trend tactics. Sainsbury’s has the advantage of being well known to most residents of the UK, but that familiarity may not necessarily result in easier trading decisions, given the lack of direction of the chart.
Spread Betting Sainsbury’s Rolling Daily
Sainsbury’s is a low value share, which therefore requires a higher wager per point for the equivalent profit or loss to other shares. The current price for a rolling daily bet is 287.61 – 288.19. Should you decide that you think the price is going downward, you could place a sell bet at the selling price of 287.61, staking perhaps £20 per point.
If the price goes down to 259.36 – 259.98, you might choose to close your spread trade and collect your winnings. Although your spread betting broker will automatically calculate the amount for you, you can check how much it is by working out how many points you have gained. Your short bet was placed at 287.61, and it closed at 259.98. 287.61 less 259.98 is 27.63 points. As you staked £20 per point, this simply works out to a profit of £552.60.
If you have been trading or spread betting for any time at all, you will know that often the markets do not go in the direction that you want. Suppose in this case the price went up to 309.63 – 310.32, and you decided that you had to close the bet to minimize your loss. In this case your starting price, as before, is 287.61, but your closing price is 310.32. That means you have incurred a 22.71 point loss, which when you multiply it by the stake has cost you £454.20.
Many spread traders choose to use a stop loss order to take care of losing situations. With a stoploss order, the spread bet is automatically closed if it reaches a certain level of loss that you set. In this case, perhaps the stop loss order would have closed the position for you at 296.72 – 297.13. The closing price would be 297.13, and taking away the starting price of 287.61, your loss would have been 9.52 points. At your chosen stake, this would have cost you £190.40.
Sainsbury’s Futures Style Bet
A futures style bet usually allows three different time periods, the near quarter, the mid-quarter, and the far quarter. The rule of thumb is that a futures style bet is more economic than a rolling daily bet if you hold the bet open for a month or more. The current price for the far future on Sainsbury’s is 288.03 – 291.50. Taking a bullish attitude, you might decide to stake £25 per point at 291.50 for the price to go up, or a long bet.
Firstly, assuming you are correct you might choose to close your winning bet when it reached 326.42 – 332.61. As you are in a long bet, it opens on the buying price, in this case 291.50, and closes on the selling price, which is 326.42. That means you have made 326.42 minus 291.50 points, which is 34.92 points. With a stake of £25 per point, this amounts to a profit of £873.
Secondly, the bet may not have worked out for you. The price might have gone down, and you would be faced with closing the bet for a loss when it reached, say, 262.30 – 265.02. Your starting price was 291.50, as before, and this time the bet closed at 262.30. 291.50-262.30 is 29.20 points. Multiplying by £25, you would have lost £730.
It is often useful to use a stop loss order to curtail a losing spread bet. With a stoploss order you do not have to be following the market, as your spread betting company will close the bet when it reaches a certain level that you set. Say in this case the bet was closed for you at 271.65 – 274.43. With a stoploss order you would have reduced your loss, even though you were not watching the price. Your spread bet was placed at 291.50, and closed at 271.65. That means you lost 19.85 points this time, for a total loss of £496.25.
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