Spread Betting Aviva | Trade Aviva
You have probably heard of Aviva [LON:AV]. It is a major insurance group that has only been exist in existence for about 10 years but can trace its origins back for 300 years. It was assembled from several other companies during a few years around the turn of the century. It includes pensions, savings, and all types of insurance including auto, life, health, home, commercial, and creditor, and therein lies the problem which faced it a few years ago. Look at this chart: –
It includes the monthly share prices for the past few years, and as you can see the value of the shares plummeted from 2007 to 2009, dropping from more than 800 down to 200. The global economic crisis hit not only the banks, but also the insurance industry guaranteeing the loans. The company was downgraded after a host of problems were reported with its finances, particularly including unrealized losses on its portfolios. Of course it is the prerogative and duty of rating agencies to adopt a conservative view on the rate of defaulted loans, particularly after such stories as AIG, Lehman, Bradford and Bingley and others.
Without being uncharitable, it must be said that such volatility can be a gift to those involved in spread betting, where you can take whichever side of the markets you want and simply bet on rapid moves in price.
The company subsequently managed to reassure investors that it had increased its capital reserves to cover its liabilities, and it maintained its dividend payout to shareholders, somewhat defiantly, but in an additional show of strength. This means that the price at that point had steadied for the most part, though you can see fluctuations between 300 and nearly 500 in the chart above. This is still a long way from its peak values, but when the marketplace is a matter of survival, Aviva would be happy to be in its current position.
But in 2012 Aviva reported big losses of £3 billion (this compared to a £60 million profit a year earlier) as the company was forced to write-down £3.3 on its previously announced USA disposal. The company cut the dividend payouts at this point with the shares taking a battering. Such volatility can also be a trap for the inexperienced spread better, as it is certainly possible to take unrecoverable losses if you do not have the experience and know-how to avoid losing too much from a dramatic move in price. There are two fundamentals that you need to bring to bear to stay away from this situation.
Firstly, you need to follow the charts, on the appropriate time scales, for a period before you do much spread betting on Aviva. Every stock is different, and you need to develop a sense of how quickly it can move, and how large the swings will be. While there are no guarantees that the price will move in the same way in the future that it has in the past, it will give you confidence to know what your average expectation should be.
Secondly, you should use a well-developed trading plan that you have tested on the actual stock, with a strategy that allows you to win more than you lose. No matter how good your strategy, it is unlikely that you will avoid any losses, but if you can keep them to a minimum then you’ll make a profit from your spread betting.
Spread Betting on Aviva
In common with many financial institutions, Aviva has been through a rough few years, but it now seems to be holding its own. The current spread betting quote is a selling price of 360.94, and a buying price of 361.66, these prices being for the standard rolling daily bet.
Say you have done your homework, and you see that Aviva should go up in value in the next few days. You could take out a long bet, staking perhaps £2.50 per point. Let’s assume that the price does what you think, and goes up to 391.62 – 392.34, when you close your bet and take your profit. To figure out how much you have made, you simply have to work out the difference in points and multiply by the stake: –
- You placed your spreadbet at the buying price of 361.66
- Your bet closed at the selling price of 391.62
- That means that you have gained 391.62-361.66 points
- Which works out to 29.96 points
- Your bet was for £2.50 per point
- Therefore you won £74.90
Because this is a long bet, you may have been charged a small amount each evening when the bet was “rolled over” to the following day, but if you only held the bet for a few days or weeks, then this amount should not have been great.
If you have a sound trading plan in place, and the price goes the wrong way for your bet, then you will close the bet and accept your loss, knowing that you have avoided losing any more. Say the price dropped to 357.84 – 358.56 and you decided to cut your losses and close the trade. This is how you work out your loss: –
- You placed your bet at the buying price of 361.66
- Your bet closed at the selling price of 357.84
- That means that you have lost 361.66-357.84 points
- Which works out to 3.82 points
- Your bet was for £2.50 per point
- Therefore you lost a total of £9.55
if you want to place a spread bet for a longer time, you might look at a futures based bet. The longer-term available at the moment, going out seven months, is priced at 361.86 – 366.23. The higher spread (difference between the buying and selling prices) allows for the fact that you don’t get charged to roll over the bet every day.
Say you want to bet again that the price will increase over the next few months. You might stake £5 per point, this time at 366.23. If the price goes up to 405.21 – 409.53, you close your bet to take your profit.
- Your bet went on at 366.23
- Your bet closed at 405.21
- The difference between 405.21 and 366.23 is 38.98 points
- 38.98 times £5 is £194.90, your total winnings
Once again, the bet might have gone the wrong way and the price dropped to 346.92 – 351.20 before you closed the bet.
- Your bet went on at 366.23
- Your bet closed at 346.92
- The difference between 366.23 and 346.92 is 19.31 points
- 19.31 times £5 is £96.55, your total loss.
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