Trading Thomas Cook Shares
The origins of Thomas Cook were well over a century ago, and the name is synonymous to many English people with a travel agency. In recent years, there have been some substantial changes and upheavals in the fortunes of this once prestigious company. Recent years have been difficult for many industries, and travel is one of the items which is discretionary when funds are low, thus hard economic times are not welcome to travel agents.
Thomas Cook Group PLC [TCG] is actually a recent corporate formation, established in 2007 with the merger of Thomas Cook and My Travel Group. In November 2011, concerns about losses resulted in the shares opening at less than half their previous day’s value, and brought matters to a head. Here is a chart of recent values: –
At the end of November, TCG negotiated a bank loan which helped the share price rise from around £.20 to £.30 (the price previously reached a record low of 9p), but there is a cloud over the future of the company.
One of the concerns is that Thomas Cook, as with other travel agencies, takes money from customers for future holiday packages, thus its cash flow is extended. There are important trade protections in place which guarantee or help when a travel company runs into economic difficulties, but these of course do not extend to shareholders or share prices, and simply cover the customers.
There are a number of issues facing this and other travel companies. There has been a general fall in international leisure travel due to economic circumstances, and because of natural disasters and civil unrest in many areas. Some say there is an oversupply of travel capacity, given the limited discretionary spending that many travellers face. The Group is also exposed to the European market which means that any persistent downturn is likely reflect on the company’s bookings.
With this as a backdrop, it is still possible to look at spread betting on the Thomas Cook Group as a potentially profitable pursuit. As such one has to balance Thomas Cook’s obvious strengths which are the strong brand and improving cashflow against its high debt and online underperformance. Given the precipitous drop last November, a cautious spread trader might be tempted to pay extra for a guaranteed stop loss, which is not something which is generally recommended since you are charged upfront via a larger spread for the GSL, whether or not the bet turns bad. However, in some circumstances it could prove to be good value.
As a general guideline, it would be wise to stay in touch as far as possible with when any announcements were due, and avoid spread betting immediately prior and after them. The corporate announcements have an ability to cause large swings in the price. Apart from that, if you can identify a trend, and by using technical analysis work out if it is sustainable, you may be able to score good profits from betting on this company.
Normal advice is to consider the way that the share has moved over the last few months, but given the unusual nature of the price movements there is probably little to be gained from considering more than a week or two. Above all, set a realistic stop loss level and make sure that you adhere to it.
Spread Betting on the Thomas Cook Group
If you wish to spread bet on the Thomas Cook Group, then it is best if you have some time to spare so that you can keep a keen eye on the market. The company has been volatile in its trading in recent months, and even a regular stop loss might not have helped you avoid big losses recently. The recent price quote for a daily rolling bet was 13.466 – 13.534, that is shares can be bought for between 13 and 14 pence.
If you think you have identified an uptrend, and want to take a long bet on TCG, then it will go on at 13.534. Say that you bet £150 per point. Perhaps the price will go up to 15.853 – 15.921, and you will close the bet to collect your winnings.
- Your long bet was placed at 13.534
- Your bet was closed at 15.853
- The difference is 15.853-13.534, which is 2.319
- You gained 2.319 points
- Your bet was £150 per point
- Therefore your total winnings are £347.85
If the price goes down instead of up, then you must act quickly to close your bet and minimize your losses. Say it drops to 13.253 – 13.321.
- Your long bet was placed at 13.534
- Your bet was closed at 13.253
- The difference is 13.534 less 13.253, which is 0.281
- That means you lost 0.281 points
- Your bet was £150 per point
- Therefore your total loss is £42.15
You can also place a futures style spread bet on the Thomas Cook Group. The spread betting quote for 6 months away is 13.522 – 13.685. As you probably know, the larger spread, or difference between the buying and selling prices, is because you can hold this spread bet open until the expiry with no further costs, whereas a daily rolling bet may have small interest charges each evening, when it is rolled over to the next day. Perhaps you think that the price will go down, and you place a short bet at 13.522 for £250 per point.
If you are right, the price might go down to 11.233 – 11.396, and you could close the bet to take your profit. This time the bet opened at 13.522, and it closed at 11.396, which means the difference is 2.126 points. This means for your chosen stake of £250 per point, you have won £531.50.
Even though you have futures style bet which you can hold for several months, you can close it at any time and you may need to do that if the price goes against you. Say the price went up to 13.763 – 13.923, and you decided to cut your losses and close the trade.
Your short bet was placed at 13.522, and you closed it at 13.923. That’s a difference of 0.401. Your bet was for £250 per point, so you lost 0.401 times £250, which works out to £100.25. Even though the price only went up a small distance, because of the large spread between the buying and selling prices losing is not cheap.
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