easyJet Fundamentals
Most people in the UK will be familiar with easyJet, or more properly EasyJet Airline Company Limited, the British airline which is headquartered in Luton. It was established in 1995, amazingly with just two leased aircraft, and you can see from the chart below that it has plenty of stock price movement, an important consideration when you are spread betting.
easyJet grew rapidly after its establishment, responding to customer demand with a series of acquisitions, and it currently has about 200 owned aircraft offering low-cost services around Europe, North Africa, and West Asia. It was first listed on the stock exchange in 2000. Its formula has always been to offer a budget service, and easyJet is now the second-largest low-cost carrier, ceding first place to Ryanair. However it is easyJet which has received more publicity by being the subject of the ITV series “Airline”.
Both easyJet and Ryanair are said to have modelled their operation on Southwest, the US budget airline. However, they take economies further by cutting complimentary snacks and charging extra for services such as priority boarding. It is a cutthroat business, depending on mass sales at minimal margin, and easyJet has a slight edge with consumers over Ryanair in that it tends to use primary airports, whereas Ryanair chooses to use secondary and slightly cheaper airports where available, even if they are further out from the destination city. easyJet also tends to be more flexible on its fare rules, in the hopes of attracting business customers who may have to make and change plans more often than holidaymakers.
Until very recently, the low-cost airlines looked to have the world at their feet. easyJet was a classic momentum play as escalating passenger numbers and rising profits quickly translated through to the share price. But while some punters were drawn in by the positive updates, those looking at the broader picture may see clouds on the horizon. The price of jet fuel has been increasing putting pressure on profit margins but there are also other variables like inflation, rising airport charges and industrial action, all representing potential threats to profitability and even viability. Competition within the industry has also been on the increase, not least from the national carriers looking to regain some ground in the short haul market by cutting their prices. Meanwhile, European Union regulatory investigations are moving to the top of the agenda and escalating oil prices may cast a shadow across the very notion of cheap flights.
From a trading perspective, the monthly price chart above shows much sideways or trendless movement, but this is a reflection of the timescale. If you look at the smaller time scales such as you would use for spread betting, you will find that there are identifiable trends and reversals.
easyJet Rolling Daily: How to Spread Bet on easyJet shares?
easyJet has been in an uptrend, but looks like it may be reversing. Say you want to place a short bet on this stock price, assuming that you have done your research with the indicators of your choice. The current daily rolling price is 599.0 – 602.0, and you decide to wager £3.50 per point.
If the bet works out for you, you might find the price goes down to 541.6 – 544.6, and you can then close your trade and collect your profits. Your short bet went on at the selling price of 599.0, and the closing price was 544.6. That means you made 599.0 minus 544.6 points, which works out to 54.4 points. Multiplying by £3.50, your bet results in a win of £190.40.
Of course, if you have ever traded before you know that some of your bets will lose. Perhaps on this occasion the price goes up instead of down, and you are wise enough to close your bet for a loss, before the losses become too large. Say you close your trade when the price goes up to 642.5 – 645.5. This time with a starting price of 599.0, the closing price is 645.5. 645.5 less 599.0 is 46.5 points. For your chosen level of bet that works out to a loss of £162.75.
As an alternative, you may choose to use a stop loss order to get you out of a losing spread bet. Many traders do this, as it saves you having to watch the price all the time. With a stoploss order, you might find that this trade was exited when the price went up to 629.2 – 632.2. The calculation of your loss is simple. The starting price for your sell bet was 599.0. The price at which it ended was 632.2. Taking one away from the other works out to 33.2 points. Multiplying by your chosen size of wager, you would have lost £116.20.
easyJet Futures Bet
With a general upward trend, you may be tempted to place a long futures style spread bet on easyJet. The current quote for the far quarter spread bet is 600.8 – 608.1. Say you decided to stake £4 per point. Your bet will be placed at the buying price of 608.1.
For the sake of example, assume that the price goes up to 662.3 – 668.2 over the next few weeks or months. When it reaches this level, you decide to close the trade and collect your winnings. With a long bet, the trade closes on the lower or selling price, in this case 662.3. Working out your profit, 662.3 minus 608.1 is 54.2 points. You staked £4 per point, so the total you won is £216.80.
Sometimes your bet will not work out, and you must learn to take your losses and move on rather than hang on in hope that the price will turn around. Perhaps the price dropped to 569.7 – 576.3, and you decided to cut your losses and close the trade. The opening price for your bet was 608.1, and you closed it at 569.7. The difference between these is 38.4 points, the amount you lost. For your chosen size of stake, this works out to a loss of £153.60.
Many spread betters use the stop loss order to close their losing trades and provide some protection from large losses. It usually works well, as you do not have to stay in touch with the market prices, and your spread betting provider takes care of everything. Assume in this case that a stoploss order closed your bet for you when the price went down to 578.6 – 585.1. Your bet closed at a price of 578.6 from the opening price of 608.1, a difference of 29.5 points. Multiplying it out, this amounts to a loss of £118 for your wager.