Cairn Energy (CNE) operates in the lucrative and volatile energy sector, which makes it a prime candidate for spread betting. It is one of Europe’s largest independent companies focusing on oil and gas exploration and subsequent production. It was established in 1981, and was founded by Sir William Gammell who was a Scottish rugby player in the 1970s before an injury put paid to his career. The company is based in Edinburgh and initially operated in the US markets, where it was only moderately successful.
This daily price chart shows the sort of volatility which you can expect from an energy stock, and this makes it suitable for the active trader.
The oil and gas company was founded in 1981 and floated on the London Stock Exchange in 1988. In the 1990s Gammell refocused the company on the North Sea and internationally, and it now has operational offices in Greenland, Norway, Spain, and Nepal. It is very active in India, where it has a 10% stake in a spinoff company called Cairn India Limited. Cairn Energy has a secondary listing on the Bombay Stock Exchange.
In the oil and gas business there are frequent acquisitions, joint ventures, and disposals to other companies, and this is how Cairn Energy has moulded its interests and developed into its current markets. It has been fairly successful, even though its value halved in the 2008 global recession, and it is currently trading below its peak of nearly 500, which it attained in August 2010. Although Cairn’s acquisition in the North Sea might look uncertain, the company still has a burgeoning portfolio. The company intends to drill some ten exploration wells and two appraisal wells in the North Sea during the course of 2013.
Looking at the longer-term, on the monthly price chart Cairn Energy is currently building a descending triangle, with an established support at around 250. Any break below this level might indicate a long-term decline. On a trading time span, the daily price chart above shows a general downtrend, thus any short trading opportunities that you discover are going with the trend.
Cairn Energy Rolling Daily: How to Spread Bet on Cairn Energy Shares?
If you are interested in trading on Cairn Energy’s volatility, you might choose to place a sell bet for £5 per point. Before placing a trade, you should aim for at least two technical indications, one to suggest the trade and the other to confirm it. The current price for a rolling daily bet is 264.14 – 265.46, so your short bet goes on at 264.14, the selling price.
Suppose for the sake of example that the price goes down to 193.63 – 194.87, and you decide to exit the trade and collect your winnings. A short bet closes on the buying price, so your bet ended at 194.87. The difference between the starting and finishing prices, 264.14 minus 194.87, is 69.27 points. At £5 per point, this works out to a profit of £346.35.
You must also be prepared for the opposite outcome. Many times the markets will not run the way you think they will, and you will be faced with closing a bet for a loss. Say in this case the price went up to 305.16 – 306.50, and you decided to cut your losses and close the trade. The starting price was 264.14. You closed the trade at 306.50. 306.50 less 264.14 is 42.36 points, so for your chosen size of wager you would have lost £211.18.
Many traders use a stop loss order to minimize their risk. Even if they are not watching the markets, their broker will close a losing trade when it reaches a level they set. In this case, perhaps the trade would be closed at 288.62 – 289.86 with a stop loss order. The closing price is 289.86, so taking away the starting price of 264.14, you would find that you had lost 25.72 points. Multiplying it by £5, that amounts to a loss of £128.60.
Cairn Energy Futures Style Spread Bets
For an example of a quarterly futures type of bet on Cairn Energy, say that you believe from your analysis that the price will go up in the next few weeks or months. Targeting a far quarter spread bet, which is currently quoted at 264.71 – 267.91, you decide to stake £6.50 per point.
In the first instance, assume that this bet works out and that you are able to close it for a profit when the price is 349.62 – 352.48. Here’s how you work out how much you made: –
- Your long bet was placed at 267.91
- You closed your bet at 349.62
- Therefore you made 349.62 minus 267.91 points
- That works out to 81.71 points
- You staked £6.50 per point
- So you won 81.71 times £6.50
- Your total profit is £531.11
For a second example, perhaps your bet lost and you closed it when the price was quoted at 196.52 – 199.60. Calculating in the same way: –
- Your long bet was placed at 267.91
- You closed your bet at 196.52
- Therefore you lost 267.91 -196.52 points
- That works out to 71.39 points
- You staked £6.50 per point
- So you lost 71.39 times £6.50
- Your total loss was £464.04
if you don’t have the time or patience to watch the markets all day long, you should probably consider using a stop loss order to take you out of a losing trade automatically. The stop loss order is placed when you take out the bet. Perhaps in this case it would close the bet for you at a quote of 212.73 – 214.85.
- Your bet started at 267.91
- You closed your bet at 212.73
- Therefore you lost 267.91 – 212.73 points
- That works out to 55.18 points
- You staked £6.50 per point
- So you lost 55.18 times £6.50
- Your total loss was £358.67