Spread Betting on Centrica PLC’s Share Price
Centrica PLC is utility company with relatively recent origins, and is ranked around 26th in size on the London Stock Exchange. It was formed in 1997, and was one of the companies that came out of the demerging of British Gas PLC. It took over gas sales and operation in the UK, and gas production in the North and South Morecambe gas fields. It still maintains the British Gas label in the UK, although another offshoot uses that name abroad.
It has had a varied history since formation, first seeking diversification into credit card services, telecoms, the Automobile Association and even the Dyno-Rod brand in the early part of this century, but divesting itself of this diversity from 2004 following adverse reactions from the stock market. Since 2005 there has been a declared intent to concentrate on the energy industry, including expanding operations overseas, particularly in North America.
Centrica doesn’t always receive the best press and comes under pressure from consumers and watchdogs as a result of price increases. In order to mitigate the volatility of open-market gas prices, Centrica has improved its own supply lines, with an increase in production of 12-15% for 2013. This could lead to other benefits if the UK government decides to use gas to shore
up its medium to long term potential energy shortage. Centrica is cutting costs in order to deliver £500 million in savings for the business. Also, a share buy-back has been extended using proceeds from the sale of Texan power stations.
The weekly price chart shows volatility: –
How to Spread Bet on Centrica Shares: Rolling Daily
As a major player in the UK’s energy sector, Centrica has a commanding role in a vital industry for the future. The company is the owner of British Gas which is Britain’s current biggest energy supplier and as a company is a defensive choice with a yield of around 5%. However, competition can be fierce and Centrica will need to stay on top of its game to thrive. The current spread betting quote for a daily rolling bet is 309.89 – 310.51 (the sell/buy price). If you think that the company is overvalued, you could take a short position, selling perhaps £8 per point at 309.89.
Let’s assume that Centrica’s underlying earnings came under pressure following a weak performance from British Gas – so did its stock price. Centrica’s share price falls to 271.63 – 272.25, and you decide to close your spread betting trade and take your profits. Your spread bet opened at a price of 309.89, and it closed at 272.25, the buying price, as it was a short bet. Working out the difference between these, you have won 37.64 points. If you multiply this by your stake, that gives you a profit of £301.12.
However, had the market moved against your trade and and risen you’d have incurred a loss. That’s why whenever you place a spread bet, you must consider the downside, as there is no way that you can be sure that any particular spreadbet will succeed. Perhaps the price will go up to 335.13 – 335.75, and you would decide that you had to sell and accept your loss before it got any worse. Your bet was still opened at 309.89, but this time it closed at 335.75 for a point difference of 25.86. This amounts to a loss of £206.88.
A useful tool when spread trading is the stop loss order, which you can place when you take out the original bet, and which automatically closes your trade when it loses an amount you set. If you had used this, your losing spread bet may have closed when the price was 326.21 – 326.86. Taking 309.89 away from 326.86, in this case you have lost 16.97 points, and this kept your financial loss down to £135.76.
Centrica Futures Based Bet
Although you usually pay with a larger spread, if you are looking at holding a spread bet for several weeks or months it can be worth placing a futures based bet. The current price for the far quarter, eight months away, for Centrica, is 310.71 – 314.46. If you think that the stock is strengthening and will increase in price, you might place a long bet for £5 per point.
Consider first the case when you have placed a winning spreadbet, and the price has gone up to 372.63 – 375.92. You could close your spread bet for a profit, and work out your winnings like this. The number of points that you have gained is 372.63 less 314.46, a total of 58.17. With a stake of £5 per point, you have won £290.85.
Of course, stocks can go down as well as up, and you may have been caught out by a fall in value. Perhaps the price went down to 263.46 – 266.65, and you decided that you must close the trade before you lost any more. The bet opened at 314.46, and closed at 263.46, for a loss of 51.0 points. That works out to £255 lost.
If you just rely on watching the prices when you can, then you can find that your losses may come suddenly and take you by surprise. Many spread betting traders use stop loss orders, which they place when they open the bet and which close the bet before it loses too much. If you had done that in this case, you might find that the bet closed when the price dropped to 284.03 – 286.72. The difference between 314.46 and 284.03 is 30.43 points. With your chosen stake of £5 per point, in this case you would have lost £152.15.
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