For this week’s trade of the week I thought we’d go abroad, to Italy.
On or around 19 June, with Italy getting a lot of economic bad press, I decided to take some punts on several Italian stocks that might recover from what looked liked historic low prices. One of these stocks was Immobiliare Grande Distribuzione (IDG). I established a long position at a price of 53.23 as shown by the solid horizontal line in the IG Index chart below, and at the time of writing I have a better-than-break-even stop order (dashed line) in place at 58.98 to hopefully stop me out for at least 5.75 points of profit. Or, I could close it right now for the £8 “paper profit” on my minuscule £0.50-per-point bet.
I know these numbers are small, but this is a example, albeit a real-money example rather than a purely paper exercise. You can imagine what the profit would have been on a bigger £10-per-point bet (or higher) now that this stock has risen by more than 31% and with almost 11% of the profit already locked in with my stop order.
In case you’re wondering, I chose IG Index for this particular trade for two reasons:
- IG Index is the only spread betting company that made this Italian equity available for trading via the web.
- IG Index, like ETX Capital, has nice charts that show how existing open positions are performing. So I can show you here how it’s going.
Now, about these embarrassingly-small stakes.
You have to understand that I have many such positions on the go at any one time, in the kind of “scatter the seeds and see which ones grow” fashion detailed in my Position Trading book. You also have to understand that if this particular equity gets anywhere near approaching its previous historic high price, it will be very profitable and will afford ample opportunities for pyramiding additional stakes along the way. See what I mean in the “bigger picture” chart below. There’s no rush.
On the other hand, maybe there is a rush. I’m not going to make millions from this trade by riding it too long at a puny £0.50-per-point, so I just doubled it with a pyramided position, and placed the stop orders on both positions such that in the worst case scenario (apart from total bankruptcy) if they both stopped out I would make a profit of £5.64 on the first position and a loss of £3.57 on the second position; i.e. a net profit. (It’s a rule of pyramiding from my Position Trading book, that I will only pyramid a second position when the new risk is more than covered by the locked-in profit on the original position.)
In the final reckoning — although I hope it continues for some time — my pyramided positions look like this:
It’s not “advice”, so don’t try this at home!
Disclaimer: this posting is for general education only; it is not trading advice.
