Spread Bet on WPP plc Shares
WPP plc is listed as an advertising agency, and is in reality a holding company for many other firms, such as Ogilvy & Mather in the advertising field, and companies in the government lobbying, consulting, and media investment sectors. Just like Berkshire Hathaway, where billionaire investor Warren Buffett took a textile manufacturing company and turned it into his investment empire, WPP started life as something totally different. It was founded in 1971 as a manufacturer of wire shopping baskets, and WPP stands for Wire and Plastic Products.
Martin Sorrell, who had been the financial director of Saatchi & Saatchi, bought a controlling stake in Wire and Plastic Products in 1985, when the abbreviation was adopted, and became the chief executive in 1987. This is why some sources say that WPP was founded in 1985. The company went on to be listed on the NASDAQ in 1988.
When at Saatchi & Saatchi, Sorrell was in charge of its takeovers of companies in the US and the UK, and he has used that experience extensively at WPP. Counting the companies which it owns, of which there are many, WPP is world’s largest advertising group by revenues, and employs nearly 160,000 people in 2400 offices in more than 100 countries.
The group is well known not only for the number of advertising, public relations and market research companies that it owns, but also for its efforts to reduce the corporate tax bill, which is rumoured to be less than 2% of revenue.
The monthly price chart shows that the company suffered a large hit during the global economic recession, perhaps not surprisingly as many potential clients would have been fighting for survival, with no spare money for advertising. However, it has since made two new highs. With a reasonable volatility, WPP is a company that might be rewarding to trade.
Spread Betting: WPP Rolling Daily
WPP Group is a holding company for many successful businesses, particularly in the advertising sector. The current price for a rolling daily spread bet is 742.8 – 744.2. You think it is going up in price, but it is a volatile stock so you decide to bet just £3.50 per point.
Suppose you are correct, and the price goes up to 863.6 – 865.0. You might then choose to close your spread trade, to collect your winnings. Checking up on how much you have won, you note that you placed a long bet at the buying price of 744.2, and that the trade closed at the selling price of 863.6. 863.6 minus 744.2 is 119.4 points. Multiplying that times your bet size of £3.50 per point, you have won £417.90.
But if you are not correct, and the price fell, it may go down to a level where you would decide that you had to close the trade just to prevent any further losses. Perhaps that level was 648.3 – 649.7. Because it was a long bet, it still is at the selling price, in this case 648.3. The entry price of 744.2 less 648.3 is 95.9 points. At £3.50 per point, this amounts to a loss of £335.65.
Many spread betters decide to use stop loss orders to better control their bets. With a stoploss order, the spread betting company will close your bet for you if it reaches a certain level of loss that you set. If you had used a stoploss order in the case above, you might find that the bet would be closed for you earlier, when the quote was perhaps 679.2 – 680.6. If this was the case, then you would have lost 744.2 minus 679.2 points, or 65.0 points. For your chosen stake, you would have lost £227.50.
WPP Futures Style Bet
To choose between using a rolling daily bet or a quarterly futures style bet, you need to decide how long you think you’re going to hold the bet open, and examine how much larger a spread is being charged for the futures bet, which doesn’t have daily interest charges adding up like the alternative. The current price for a far quarter futures bet on WPP is 743.7 – 752.7. If you think it is going up in price over the next few weeks or months, you could place a long bet at 752.7 for £6 per point.
If you are correct, you might find the price goes up to 893.0 – 899.6, and then decide to collect your winnings. Your bet was placed at 752.7, and it closed at 893.0. That means you made 140.3 points. At £6 per point, your profit is £841.80.
However, many times the price will not go in the direction that you select, and then you are faced with closing your bet and accepting your loss. Say this happened when the price dropped down to 628.3 – 638.7. Working out how much you lost, with a starting price of 752.7 and a closing price of 628.3 you have lost 124.4 points. Multiplying this times £6 gives you a loss of £746.40.
One of the things you must do when spread betting is cut your losses, in other words close a losing trade quickly, as soon as you realize it will not succeed. For this you could use a stop loss order, where your spread betting provider watches the market for you and closes the bet when it reaches a certain level of loss. Say in this case your stoploss order triggered, and your losing bet was closed when the price was 681.0 – 692.2. 752.7-681.0 is 71.7 points lost, and that would have cost you £430.20.
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