Trading Melrose PLC
Melrose plc [LON: MRO] is an interesting prospect for spread betting, as it has a volatile record of share price.
It is a buyout company, which looks for and takes on ailing businesses that it can turn around. It was founded in 2003, when it was listed on the London Stock Exchange’s Alternative Investment Market (AIM), but within a couple of years it moved up to the main market. An example of a success is the Dynacast company which makes diecast metal parts. It acquired Dynacast in 2005 and sold it in 2011 for $590 million, recording a 32% jump in revenue in 2010.
It is important to note that Melrose PLC (EPIC code NYN.L) is different from Melrose Resources PLC (EPIC code MRS) which has also been listed on the UK exchange but was de-listed in October 2012, having merged with Petroceltic. Melrose PLC specializes in three types of company, Energy, Lifting, and other industrial sectors. The energy division includes turbo generators, such as some of the Hawker Siddeley group. The lifting section is mainly for oil and gas production and mining, and other industrial includes companies such as Harris and Truth.
You can see from the chart above that Melrose was affected during the global economic depression, but that it also has several serious setbacks despite its overall upward trend. This is to be expected, given that its endeavours are closely related to reviving failing companies, a business that is not guaranteed to be successful in every case.
From a spread betting point of view, you can see that the chart tends to respond to the MACD, so this provides a good starting point for trade selection. If the prospect of sudden and unexpected price moves concerns you, then you may wish to consider spread trading on other companies or taking out guaranteed stop loss orders.
Melrose Rolling Daily
Melrose can be a volatile stock, depending on the market’s view of its latest acquisitions and disposals. At the moment it is in an uptrend, and the quote for the rolling daily spread bet is 243.96 – 244.44. Perhaps after analyzing the chart you decide that the uptrend will continue, and decide to place a long bet for £2.50 per point.
Assuming firstly that your bet works out, you may find that the price goes up to 287.62 – 288.10. You decide to close your bet and collect your winnings. Your bet was placed at a price of 244.44, and closed at 287.62. 287.62 minus 244.44 is 43.18 points, your gain in points, so multiplying this by your stake you would find that you had won £107.95. There may have been a small charge to your account each night when the bet was rolled over, and the amount of this depends on your spread betting provider, but is usually not a significant adjustment.
Of course some bets will succeed and others fail, so considering the losing case, perhaps you would decide to close your bet for a loss if the price dropped to 209.32 – 209.80. This time your closing price was 209.32, so taking this away from the opening price of 244.44 you find you have lost 35.12 points. At £2.50 per point, this amounts to £87.80.
Many spread betters decide to use a stop loss order, which watches the market even when they cannot and makes sure that a losing bet is closed if a certain level is reached. In this case a stop loss order might have closed the bet for you earlier, when the price was 217.86 – 218.34. Working out your losses this time, 244.44 less 217.86 is 26.58 points, which at your chosen level of bet amounts to a loss of £66.45.
Melrose Futures Based Bet
The current price for a far quarter bet on Melrose PLC is 244.36 – 247.31. Taking a long view, perhaps you might feel that Melrose is currently overpriced and due for a correction. You place a short or sell bet for £5 per point.
Suppose the price drops to your target level of 189.34 – 192.27, and you decide to close your bet to collect your winnings. As this was a short bet, the opening price was the selling price of 244.36, and the bet closed at the buying price of 192.27. 244.36 minus 192.27 is 52.09 points. At £5 per point, this amounts to a win of £260.45.
Even though you have taken out a futures based bet which does not expire for many months, you are allowed to close it at any time. If the price suddenly moves upwards, giving you a loss, you may decide to close the bet quickly to prevent any further losses. Say the price went up to 279.63 – 282.46, so you ended your trade. The opening price would still be 244.36, as before, but this time the bet closes at 282.46. The difference between these numbers, 38.10 points, is how much you have lost. Multiplying by £5, this bet would have cost you £190.50.
If you do not have time to watch the price all day long, you might find that a stoploss order is useful. Usually this is placed when you open the bet, and it automatically closes the bet at a certain level of loss. Suppose that a stoploss order would close this bet when the price goes up to 268.10 – 271.06. Working it out this time, 271.06 less 244.36 is 26.7 points. As your stake was £5 per point you can see that with a stop loss order you would have lost £133.50.
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