Spread Betting Vodafone Group
Vodafone (VOD) is an international wireless phone company, and simply the largest in the world, when considered by market capitalization. It has interests in nearly sixty countries. The company is valued at around £87.6 billion and is Britain’s third biggest stock market quoted company, behind only oil behemoth Royal Dutch Shell (RDSB) and banking group HSBC (HSBA).
Fortunately, reflecting my age, a few years into my professional investing career in the City, the excitements of the dot-com bubble occurred which included Vodafone shares soaring so, at one point it represented well over 12% of the FTSE 100. Whilst analytically it could only ever account for a 10% influence, it was clearly bonkers and unsustainable and – after some fund manager at the time told me that a four quid share price was still cheap – I exited stage left.
As it is so large, it has a good grip on the market, buying the instruments at rock bottom prices, and using its worldwide spread to develop products and distribute them globally with little extra cost. It has aggressively expanded into emerging markets such as India and Turkey, and is building an almost unassailable position in many countries. On the downside the company is facing stagnation in the United Kingdom and weakness in Spain and Italy due to the eurozone crisis. Its practices, particularly regarding negotiated tax deals in the UK and the US, have come under scrutiny, but it unlikely that any repercussions will involve more than a blip in the steady expansion. The company has recently sold its stakes in SFR, China Mobile, Softbank and Polkomotel for £15 billion in cash putting the company in a good position to continue paying regular and special dividends. In addition Vodafone has agreed the sale of its 45% stake in USA mobile operator Verizon Wireless to partner Verizon for $130 billion which should provide a healthy dividend to shareholders for years to come.
As you can see, unlike many other businesses Vodafone has practically caught back up to its position prior to the slump. The limitations to its current recovery revolve around the weak European economies. Both the monthly chart (above) and the weekly chart show a narrowing of the Bollinger Bands which usually means that is about to be a breakout, although it does not predict the direction.
Vodafone is in a market that has boundaries, but it has a decent way to go before saturation, given its continual expansion into emerging areas. Even when the mobile telephone market as such becomes saturated with fierce competition in Europe, there are many new data and Internet possibilities where Vodafone will push more boundaries. For instance, in the UK Vodafone has recently launched its own high-speed network. As market leader, it is in a position to show the way to other smaller mobile device providers, and it has also been able to buy a position in several countries including Africa by taking over local providers. With evolving technologies, there is plenty of room for growth in the UK mobile telecommunications sector.
According to market analyst Chris Bailey the trouble that Vodafone has is that it needs to be more than mobiles. That was great in the 1990s, but in the 2020s you need to offer all aspects of the telecom offering to remain relevant. To be fair, Vodafone has built its home and business offerings, but it is still a step behind (say) BT Group (BT.A) which sensibly went the other way around and bought back into mobiles to create the business we know as EE nowadays. Of course, Vodafone is so much more than UK mobiles (and a bit more), as Germany is technically its largest market and it has a bunch of African exposure too. However, the rest of Europe is just like being in the UK mark two. Africa, especially outside South Africa, has a bunch of potential obvious growth angles, but if I was Vodafone I would look to split the business geographically. That might create some value for long-suffering shareholders…or it might not. Honestly though, it is the smart thing to do.
If you are interested in spread betting on Vodafone’s fortunes, then you should follow the movement for a few weeks or perhaps even months, learning the typical way in which the price changes. The stock is also responsive to economic and corporate announcements like when Vodafone and O2 owner Telefonica announced their plans to setup a shared grid in the United Kingdom. This announcement came in response to regulatory body Ofcom’s requirement of 98% coverage by 2017 and basically means that the two competing companies will now be working together on the network infrastructure to roll out the 4G service in the shortest possible time. This was a material development for both Vodafone and O2 since it significantly improves coverage for the two companies and could be a good opportunity to go long. Let’s assume that you expected Vodafone shares to rise following the 4G announcement; so you established a ‘buy’ spreadbet long trade on Vodafone Shares. If you were right and prices moved in the direction you anticipated you net a profit, otherwise you incur a loss.
When you look at the charts, you should consider several different time scales to see what further information you can glean from them. This is even more important if you are considering betting on futures style bets, where you might be holding a bet open for several months. For instance, although the Bollinger Bands narrow on both the chart above and the weekly chart, indicating that a breakout may be coming, if you look at the daily chart you will not see the same effect. If you are considering short term betting, the timing of your bet should be guided by the shorter term charts. Someone who simply wants to look at their investments every week or two would see an opportunity to take a stand in Vodafone based on the weekly chart, once the direction of the breakout becomes clear. If you want to follow the bet daily, or more frequently still, then you would not find the same signal in the charts. You would be looking at the longer term charts simply to see if your intended trade was in the direction of the trend, which is generally preferred, and using the short term charts for your entry and exit timing. Whatever you do make sure that you have appropriate risk controls in place. For a large liquid share like Vodafone a 10% stop loss may be appropriate but for other lesser traded companies the stop loss should be set at say, 25% or more to allow the price some room for movement. Also, keep in mind that stop loss orders should be moved with the price action. So if you ‘buy’ Vodafone at 170p on a 10% stop loss, the stop would be set at 153p. If the shares were then to move up, say 200p your stop loss should follow, edging up to 180p. This will allow for maximising of gains while limiting losses at the same time.
Spread Betting on the Vodafone Group
The Vodafone Group has steadily increased in value by taking over the wireless markets in many countries and is showing market resilience in an increasingly difficult economic climate. In this sharply competitive field, Vodafone have established themselves as one of the go-to providers.
As we know spread betting is traded on margin. Trades are leveraged so if you wanted to take a position on Vodafone equivalent to £5,000 worth of stock you would need to deposit a 5% margin deposit [£250]. This is unlike conventional dealing with a stock broker where you could have to deposit the full £5,000 to buy the shares. If Vodafone stock were to rise 10% in the direction of your trade, you would have made £500 for having just £250 tied up in margin. Of course the big risk with this is that should the market move against you, you would likewise lose £500 and you would have to put up the difference.
The current price for a rolling daily bet is 172.83 – 173.22, which means the shares are selling for about 173p, or £1.73 each. If your analysis of the Vodafone charts suggests that the price will be going up in the next few days, then you might take out a buy bet for £20 per point. This is also called taking a long position. If you are correct and the price does go up, then you need to decide when it has risen as much as it is likely to, and close the bet before it goes back down. Say it went to 181.21 – 181.60, and you decided to collect your winnings.
You opened your long spread bet at the buying price of 173.22. The bet would close at the selling price of 181.21. That means you have made the difference between these in “points”. 181.21 minus 173.22 is 7.99. With your stake of £20 per point, that means you have won £159.80.
If it didn’t work out, and the price went down instead of up, you would be in a position where you needed to close your spread bet and accept the loss. It is best to do this sooner rather than later to limit the amount that you lose. Perhaps the spread betting quote would go down to 170.96 – 171.35, and you would decide that you had to close your bet before you lost any more.
You opened your long bet at the buying price of 173.22, and this time it closed at the selling price of 170.96. The difference between these is 2.26, but this time it is points lost. Multiplying by your stake of £20 you find you have lost £45.20.
You can also take a longer term position on Vodafone, taking out a futures style bet. The current spread betting quote for a bet seven months out is 173.45 – 175.59. Even though you can hold the bet without any further cost for seven months, you can always close it as soon as you want to, either to take your winnings or to limit your losses if it goes against you.
Say you decide that Vodafone is going down, and place a spread bet for £15 per point, which would be at the selling price of 173.45. In due course the price goes down to 162.15 – 164.21, and you decide to take your winnings. This time the bet closes at 164.21, the buying price, because it is a short bet. That means you have made 173.45 minus 164.21, or 9.24 points. Multiplying that out, you have won a total of £138.60.
Once again, you must consider that many bets lose, and if this one starts to go wrong you need to close it and accept your loss quickly. Say the price went to 176.73 – 178.85 and you closed the bet. The bet closed at 178.85, so you lost 178.85-173.45, which is 5.40 points. At £15 per point, your total loss is £81. The risk can be further controlled with a guaranteed stop loss which for an additional premium will automatically cut the position at your specified level.
Join the discussion