From a customer's perspective, access to markets as diversified as crude oil to Vodafone to interest rate futures, all from a margined trading account, is the holy grail of trading. Until recently wider dealing spreads forced active traders to consider CFD trading. No longer the case, spreadbet dealing charges are consistently lower, and the most seductive benefit ... profits are free from capital gains tax.
It is a fact that the market can be unpredictable but some of its opportunities come round as surely as night follows day - because they are written in the calendar. For instance the likelihood of a stock market rise can vary quite dramatically depending on the day of the month. On the 23rd day of the month, prices typically rise just 46 per cent of the time. But on the 15th day of the month, prices rise 58 per cent of the time.
Single-day differences are interesting but are of little practical relevance unless you are a very short-term day trader. But longer-term investors could still reap significant benefits if they routinely invest money in the stock market at the points in the month when a grouping of adjacent days each offer above-average likelihoods of a daily profit.
It is not common knowledge, but one such opportunity occurs around the month-end, from the 27th day to the 6th of the following month when salaries tend to be paid and pension contributions invested. Another profit spike often occurs in mid-month - the 14th and 15th. Both trends have been apparent since 1935 when daily prices were first recorded in the UK.
Little has changed in recent years. A similar computation based upon daily price data from the last decade or two produces comparable graphs to the one shown here. Over the long run, investors who invest during strong segments of the average month can reap significant gains than had they invested during the weaker days. Ignore taxes and trading costs for a moment. A hypothetical investor who only held shares from the 27th to the 6th of the following month since 1935 would have seen a £1,000 start-up investment grow to £206,000. Staggeringly, the same investment would currently be worth just £61 if the system was reversed with shares held only during the rest of each month.
In today's market, it is possible to profit by following a "good day only" investment strategy. Here is an example. A £10 per point spread bet every month from the 27th to the 6th of the following month would have accumulated more than £40,000 in profits in the last decade. There were even profits to be had during the bear market of 2000 to 2003 when the broad index fell by half.
This trading philosophy does not produce extra profits every time. But it should provide a significant edge over the long-term.
Spread bets give you the advantages of investing in equities without the inconveniences. One of the most sure-fire date-driven strategies is what is known in the hedge fund industry as 'dividend stripping'.
The reasoning behind it is quite simple really. On the day a company goes ex-dividend a company's share price usually falls as the cash to pay the dividend leaves the balance sheet bound for investors' pockets. In theory, this should "all come out in the wash" as the shares should fall back by the amount paid out in dividend. But this doesn't always happen - stocks with good momentum often don't fall by the full amount. So a trader who jumps in, banks the dividend and bails out before the share price "fully settles down" can often make a tidy profit.
So by buying the shares the day before the ex-dividend date, investors can collect the payout and, by selling the following morning, make their return from the difference between the price drop and the dividend. Returns are only in the order of 0.5% so leverage is a must. But with the advent of spread betting private investors can turn that 0.5% into 5% - not bad over a couple of days. Smith comments, 'If you do a spread trade then instead of buying £10,000 shares you can buy £100,000 and get ten times the return.'
Note: The ex-dividend date is the first day on which it is no longer possible to buy the shares and qualify for the dividend. The record date is usually two days after the ex-date. The payment day is the day on which funds are transferred to shareholders.
Triple witching hour is when stock options, stock index options and stock index futures contracts all expire simultaneously. There is one type of deal for options and two for futures, hence the name triple witching. It is the expiration of individual stock options that can result in increased volatility in shares and provide the opportunity to make some gains.
Triple witching hour is the final hour of the stock market trading session on the third Friday of every March, June, September, and December. In the UK a triple witching hour occurs between 10.15 am and 10.30 am while in the US it happens over the course of an hour, hence the name, during which trading is temporarily stopped.
Options involve trading, or agreeing to trade, stock at a future date at a certain price. When all three contracts expire at once traders rush to balance portfolios which can lead to significant volatility in the underlying indices. During such times computerised trading programmes go into overdrive to balance the portfolios of derivative traders and make sure they are not exposed to crippling losses should the markets move against them.
Sometimes this simultaneous trading can trigger huge movements in the underlying stocks. The most famous recent instance of triple-witching occurred just after 11 September 2001, when jittery markets coincided with triple witching in both the US and the UK. The FTSE 100 fell by 337 at one stage and over 4.1bn shares changed hands.
This volatility will depend on the number of put options versus call options on each individual stock. If there are more puts, then sales will outnumber purchases and the share price may fall. The reverse is true when there are more calls.
You cannot aggregate the number of puts versus calls ahead of the event - but after the 15 minutes are up there is sometimes a chance to make a quick turn. 'If a stock comes out of the period up 5% you can short it and, if it comes out down 5%, buy it on the assumption that the share price will settle back to where it was before the triple witching hour.'
Recent research has found that US data releases on non-farm payrolls, the unemployment rate, initial unemployment claims and consumer sentiment tend to account for the largest moves in both US and British Markets.
US economic data is regularly released at 1.30pm GMT and one of these is the US non-farm payroll employment figure. Why is this figure so important? Most companies may be listed in London but FTSE100 companies derive much of their earnings from the US. This is particularly true for the pharmaceutical, telecom and banking companies that dominate the index. Therefore it should come as no surprise that the state of the US economy can move markets in the UK. One of the key indicators of the US economy is the non-farm payroll employment figure, which is announced on the first Friday of each month.
We can take as an example an extract from Shares Magazine; The impact on the FTSE100 was clear from the release of the February figure on 10 March. In February non-farm payroll employment grew by 243,000 which, according to reports, was above market expectations. The FTSE 100 was weak on the day but put on 60 points between 1.30pm and 4.30pm.' The effect is less pronounced for the FTSE 250 and FTSE Small Cap indices, where constituents are much more skewed to the UK economy.
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