Spread Betting on Old Mutual Shares
Old Mutual plc is an international financial group, established first in 1845 as a mutual insurance company in South Africa. It is quoted on both the London Stock Exchange and the Johannesburg Stock Exchange, and has more than 12 million customers. Primarily based on the long-term savings market, Old Mutual has some other interests, such as providing insurance services in South Africa, and part ownership of a banking group.
In the UK, Old Mutual Asset Managers is the name of the local branch, wholly owned by Old Mutual, and is an investment advisor to hedge funds, mutual funds, and managed accounts for corporate and private investors. There is a Bermuda branch to manage and direct international investments tax efficiently. On the African continent, in addition to its South African presence Old Mutual also works in Kenya, Namibia, and Zimbabwe.
As can be seen from this monthly price chart, in common with many other, particularly financial, companies there was a big drop in share price in the 2007 – 2008 global economic meltdown, and prices have still not returned to prior levels.
It is important to note with any financial company that the share price is not directly related to how well it has performed for its investors. A company can be doing an excellent job of looking after other people’s money, but still trail in its share price; on the other hand, the company may be mismanaging funds held, but the shares are increasing. There is obviously a relationship between how well the company is perceived and the value of its shares, but there is no direct connection.
From a spread betting perspective, it does not matter if the shares are going up or down so much as if the moves are significant and therefore represent a good opportunity for income. It appears from the chart that this is the case with Old Mutual, and therefore if it fits in with your spread betting strategy, you may find it can be profitable.
Old Mutual Rolling Spread Bet Daily
The current quote for a rolling daily bet on Old Mutual is 142.16 – 142.64. As this represents a little over £1 per share, you need to think carefully about the size of your wager in order to make a decent profit. A 10% change in price would only give you about 14 points gained, and the typical daily range is about three or four points.
You decide that the signs are that the share price will fall, so you place a sell or short bet for £25 per point at the selling price of 142.16. Assuming you are correct, you might find that you can close your bet and collect your profit when the price is subsequently quoted at 130.62 – 131.10. Work out first how many points you have gained. The opening price for the bet was 142.16, and the bet closed at 131.10, the buying price. The difference is 11.06 points. Multiplying by your stake of £25 per point, you have won a total of £276.50.
If the price goes the wrong way, you may find that you need to cut your losses and close the trade when the quote is 149.71 – 150.19. This represents a loss to you of £25 times (150.19-142.16), or £25 times 8.03 points. This works out to a total loss of £200.75.
When you open your bet, you are given a choice of placing a stoploss order. This is a useful command, which tells your spread betting company to close your spread bet if your losses reach a certain potential level. It takes care of watching the market prices for you. In this case, if your bet had closed with a stoploss order you might find that you lost less. Perhaps the price went to 147.32 – 147.80 and the spread trade closed. In this case you have lost 147.80 minus 142.16 points, which is 5.64 points. That would have cost you £141.00.
Old Mutual Futures Style
Old Mutual is an investment advisor with insurance and other interests. It suffered badly during the global economic crisis, and is now showing reasonable recovery. If you think that the price is going up, you could place a futures style spread bet on the far quarter for 142.89 – 144.81. For a long bet, the higher or buying price applies, so your bet goes on at 144.81. You stake £20 per point.
Supposing that you are a winner, you might choose to close this bet and collect your profits when the price is quoted at 154.32 – 156.20. Your spread betting broker will work out the value for you, but you can easily figure it out for yourself. Your bet went on at 144.81, and it closed out at 154.32. That means you gained 154.32 less 144.81 points, which is 9.51 points. Multiplying by your stake, your winnings are £190.20.
If on the other hand you have placed a losing bet, you might decide that you have to close it and cut your losses when the price goes down to 135.65 – 137.51. For this example, you have lost 144.81-135.65 points, which works out to 9.16 points. At £20 per point, your loss is £183.20.
Many spread traders use stop loss orders to rescue them from a losing position. Unless you pay extra in the form of a bigger spread and buy a guaranteed stop loss order, you are not certain of the price that your spread bet will be closed at. The stoploss order simply tells your spread betting broker to close the bet at the market price. In this case, a stop loss order may have taken you out of the trade when the price falls to 138.30 – 140.00. You would lose 144.81 minus 138.30, or 6.51 points for a loss of £130.20.
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