Spread Betting ARM Holdings
UK chip microprocessor architecture design champion ARM Holdings [ARM] is a multinational technology company headquartered in Cambridge, and its products are being put to noteworthy use, giving it good growth prospects. It has been structured so that it does not get involved in actual semiconductor manufacture, but is an IP (intellectual property) company licensing manufacture to many different OEM partners. Apart from the advantage of concentrating on its particular field of expertise, this also means that as demand increases ARM does not get involved with increasing production capacity, and merely benefits from additional licensing fees.
The company is unique that it doesn’t make silicon chips or design them but develops architectures for microprocessors which other entities could then license and utilise as a basis for their own designs. Arm is then paid licensing fees and royalties every time an end product based on its architecture is sold. The company has been so effective in advancing its business model that now its low-power technology architecture is used in 90% of smart phones and tablet computers, 80% of digital cameras, and over a quarter of all electronic devices. The Cambridge firm has also been expanding into new areas like digital TVs, server computers and wearables like the anticipated iWatches and Google Glass gadgets while the increasing use of smart meters and home-based networks also immediately benefits ARM Holdings.
The ARM designed processors use much less power than conventional devices, which is why they have been widely adopted in portable units. However, the reduction in power may also assist in data centres, where the power and air-conditioning demands of older designs can be replaced for significant savings in installation and operating costs. ARM Holdings competes with such big names as Intel (INTC:NDQ) in personal and server computers although recently Intel itself has decided to adopt the ARM architecture so as to improve its hold on the mobile device market.
ARM has been incorporated since 1990, and the acronym originally stood for Acorn RISC Machine (Acorn Computers were an early entry into the personal computing market), was changed at incorporation to Advanced RISC Machines, and subsequently became simply ARM Holdings in 1998 when it went public. The company operates in the technology hardware & equipment section and having moved along at a steady pace with the price of about 100p for many years, the company took off in 2009 and now trades at around 890p with a market valuation of about £12.5 billion. This increase is undoubtedly because of the novel technology and the increased use of personal devices requiring low power consumption.
With the advent of cloud computing, ARM is hoping that its power advantages can lead to further expansion with the data centre model. The one disadvantage, it must be said, is that processing speed is a little slower than with conventional processors.
ARM Holdings Rolling Daily
The current price for a rolling daily bet on ARM Holdings PLC is 599.4 – 600.6. This means that if you think the price of the stock is going up, you can place a spread bet at the buying price of 600.6. Say you stake £2 per point that the price will increase in the next few days.
After a few days the price has gone up to 641.6 – 642.8, and you decide to close your spread trade and take your profit. The spreadbet closes at the selling price of 641.6. This means that you have won 641.6-600.6 points, or 41 points, which for your stake amounts to £82.
Of course, the price may not have continued up, and could have fallen to 566.7 – 567.9. If you closed your spread bet at 566.7, you can figure out how much you have lost by simply calculating the point difference. 600.6 less 566.7 is 33.9 points. As you staked £2 per point, you have lost 33.9 times £2 which is £67.80.
Now if you had studied the chart, you might have decided that if the price fell to 585 then the uptrend was over, and therefore you should close the spread bet and accept your losses. You could have placed a stop loss order at 585 when you made your initial spread bet, and this would have closed your bet for you once the price had dropped to that level, reducing your losses. The stoploss order simply becomes a market order when it is triggered, so your bet may not close at exactly the number you choose – say the price was 584.1 – 585.3 when the spread trade was closed automatically.
Your spreadbet was placed at the buying price of 600.6, and it closed at the selling price of 584.1. This means you lost 16.5 points, which at £2 per point is £33. This shows how a stoploss order can save you money when you are spread trading.
ARM Holdings Futures
ARM Holdings is a technology company which has been doing well in recent years. If you however think that the price is due for a retracement in the next few months, you might want to place a sell or short spread bet on it. The current quote for a futures style spread bet nine months away is 601.6 – 608.8. Say you opened a spread trade with a bet of £4.50 per point. As the bet is a short bet, for the price to go down, it goes on at 601.6.
Suppose that you are right, and the price dips down to test the support at 540. As it starts back up, you decide to close the bet at 542.1 – 549.0. That means you have won 601.6 less 549.0 points, which is 52.6 points. At your chosen stake, that amounts to £236.70.
Often things do not go as you hope they will, and suppose instead in this case the price continued to climb until it reached 639.2 – 647.2, at which point you decided to close your spreadbet and accept your losses. The number of points you have lost is 647.2-601.6, which is 45.6 points. Unfortunately, that means that you lost £205.20 on the spread trade.
The recommended way to avoid this much loss is to put a stop loss order on your spread bet as soon as you take it out. Suppose you put it 10 points away from your opening price, your spread trade could be closed for you when it goes up to 618.8 – 626.0. Note that this price is not guaranteed unless you pay extra. In this case you lost 626.0 less 601.6 points, which is 24.4 points. Your wager size of £4.50 per point still applies, so you can multiply 24.4 times £4.50 to see how much you lost. This works out to £109.80.
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