Financial Spread Trade ICI
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Important Note: 20-Dec-07, Imperial Chemical Industries (ICI) was deleted from the FTSE 100 following the cash acquisition of Imperial Chemical Industries PLC by Akzo Noble NV.
ICI Clean Financial Archive Page - 07-Aug-07:
The recent glut of takeovers continues as Dutch Conglomerate, Akzo Nobel bid for ICI. Akzo have suggested they would pay 670p per share.
Is ICI worth $8bn? The initial offer was 650p a share before it was rejected. Akzo needs to make a firm offer by 9 August. Although that deadline can be appealed against if talks are ongoing.
Whatever happens the 670p is significant and values ICI 41% higher than the mid-March share price.
Today's issue of the Financial Times also referred to the ICI share market. At the moment the ICI (December) market is priced at around 647.3 - 649.7 with some of the spread betting companies.
As with many markets, investors can spread bet on the future value of shares. That is to say that, you can financial spread trade on shares to go up or down. For example spread trading on ICI increasing to more than 649.7p per share by 18-Dec-07, ie when the market closes.
So looking at an example, let's say you see the live price on an online spread trading service like FinancialSpreads.com. It states a spread of 647.3 - 649.7 and that, after your market analysis, you feel that the ICI price will increase to more than 649.7p per share.
Therefore you buy at 649.7p for a stake of £25 per point, ie betting £25 per penny increase or decrease in value.
So if, let's say that by the end date of 18-Dec-07 the ICI price is 654.7p. If that’s the case, you have made a profit.
That is calculated by taking the difference between the closing level of the trade, 654.7p and the price you bought at, 649.7p.
P&L = (654.7 - 649.7) x £25 per point stake.
= 5 x £25 per point stake
= 5 x £25 per penny
= £125 profit.
But if the market didn't work as expected and had the ICI value gone against you and closed down at, let’s say, 646.9p, then you would have made a loss.
Loss = (646.9 - 649.7) x £25 per point stake.
= -2.8 x £25 per point stake.
= -£70 loss.
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Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
'Spread Bet on ICI - Shares Spread Trading' by DB, updated 07-Dec-08
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