# Is it possible to exploit the "overpricing" of AIB shares?



## Brendan Burgess (19 Nov 2014)

Is there any way to bet that AIB shares are overvalued? Is it possible to sell them short?


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## MrEarl (19 Nov 2014)

Brendan Burgess said:


> Is there any way to bet that AIB shares are overvalued? Is it possible to sell them short?




Would one of the spread betting firms take a position on them, or facilitate both yourself and another party taking opposite positions perhaps ?


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## ashambles (19 Nov 2014)

Spread betting really is for people who think the price will be lower in a few hours than those who think it'll be lower in the next few months or years.  It's expensive to continue a position from day to day. 

As for shorting them I think the problem is there's no organized investor who will take the other side. 

The only people holding the shares at current prices either are gambling day to day or don't know what they're doing.


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## Brendan Burgess (19 Nov 2014)

MrEarl said:


> Would one of the spread betting firms take a position on them, or facilitate both yourself and another party taking opposite positions perhaps ?



I checked IG Index and they don't seem to have a market in them.

Agree with ashambles that most transactions seem to be short term so you have big transaction costs. 

Ideally, I would like to buy an option to sell AIB shares at 7 cents any time over the next year.  So, if the price falls to around 2 cents, I would make money.  Of course, the madness of crowds can persist over a long time and they might well rise in the meantime.

Brendan


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## Jim2007 (19 Nov 2014)

Brendan Burgess said:


> Ideally, I would like to buy an option to sell AIB shares at 7 cents any time over the next year.  So, if the price falls to around 2 cents, I would make money.  Of course, the madness of crowds can persist over a long time and they might well rise in the meantime.



Well while not wanting to comment on a particular share, I can observe that shorting a company with a limited float and a limited market is a dangerous exercise.  If any of the big boys come out to play, you could suddenly find yourself in the middle of a Short Squeeze.


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## Brendan Burgess (19 Nov 2014)

Jim2007 said:


> Well while not wanting to comment on a particular share, I can observe that shorting a company with a limited float and a limited market is a dangerous exercise.  If any of the big boys come out to play, you could suddenly find yourself in the middle of a Short Squeeze.



That is why, ideally, I would like to buy an option, rather than short selling them. 

I appreciate the risks of short selling so I would have to be very careful about the amount.

But I presume that neither a short sell nor an option is available. 

Brendan


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## Brendan Burgess (19 Nov 2014)

Can I do a CFD on AIB shares? 

I remember thinking about this back during the dot.com bubble, but never pursued it.  Having said that, the bubble probably became bubblier after I first thought about it. 

Brendan


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## punter (4 Dec 2014)

Wasn't there some guy who picked up a lot of CFDs on a reputable Irish bank a few years back ? 

I never heard how that ended up. What was his name again ?


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## camel (5 Dec 2014)

Brendan Burgess said:


> I checked IG Index and they don't seem to have a market in them.



Looks to me like IG does do AIB. Search for 'Allied Irish Banks PLC'.
As of right now (8:20am, Friday 5th) it's: Sell: 9.276, Buy 9.524, so a sizeable spread to relect IG's risk.


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## Brendan Burgess (5 Dec 2014)

Hi Camel 

Thanks for that. The link is here: http://www.ig.com/uk/ig-shares/allied-irish-bank-plc-iseq-ALBK-IE

I have never spread bet before, so can I clarify my understanding of it. (I presume that this is a spread bet?) 

Let's say I want to sell 1m  AIB shares. 

I sell them at 9.276 so that is €92,760 

I have to put up a margin of 75% - so I will pay €70,000 up front. 

The expiry date is 01/04/2016 ( which is presume is 1st April 2016?) 

Let's say that at some stage before then the share price drops to 3 cents and their market is 2.9  3.1

I "buy" 1m shares for €31,000 

My profit is €92,760 - €31,000 or €61,000 

*If the share price rises to €15.30 ... 
*Say 15.276  /15.524

I temporarily "lose" 1m @6cents or €60,000.

I have to put in another €60,000? 

*Other questions
*I see that 81% of IG's customers are long on this share so only 19% are betting that it will fall.   

A theoretical point. If the client sentiment was 50% long and 50% short, then IG would not be taking any risk and would just be the agent taking the spread? 

Brendan


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## Brendan Burgess (5 Dec 2014)

How relevant is the Expiry date? 

In effect this is open ended.  Let's say that the share price doubles but I am still convinced that it is worth only 2 cents.  Then I just bet again and am getting an even better price until it does actually fall to 2 cents. 

Of course if the share price goes to €1, I would be blown out of the market.


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## camel (5 Dec 2014)

Brendan,

Your understanding looks pretty spot on to me. The notion of the number  of shares you're buying etc. though is pretty old school w.r.t. spread  betting. A much simpler (in my opinion) way of looking at it is as  follows.

- Current market, sell @ 9.276, buy @ 9.524. Minimum stake: 1 euro per point or 'pip' for short.
*1)* So I put on a sell trade @ 9.276 at 1 euro per pip stake.
I'm instantly down 248 euros as that's what someone on the other end of the trade (probably IG themselves) will take them at.
I don't really care how many shares that represents - or how many  physical shares IG has had to buy/sell/hedge in the background.
*2)* Price goes to 3 cents (or a buy price of 3.1).
Difference between 9.276 and 3.1 = 6.716 or 6716 pips.
My stake is 1 euro so I've made 6716 euros.
*3)* Price goes to 15.30 (or a buy price of 15.524).
Different between 9.276 and 15.524 = 6.248 or 6248 pips.
So I'll need that and more (to cover 'gappages', i.e. maybe IG won't get  an ideal price when they go to cover) in my account to stay in the  trade. If I don't they'll close it out probably and you're wiped out.

You can set stop losses so that say the price goes to 10.0 you automatically close out (at a loss).

I only trade spots (current market and open ended - IG call this DFB I think) so the expiry date doesn't come into it for me.

Make sense?
(your numbers match mine more or less - this is back of napkin stuff - except that I'm thinking in terms of stake per  point at 1 euro, whereas you're thinking in terms of number of shares at  9.276 each).


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## Duke of Marmalade (5 Dec 2014)

I was a bit surprised when alerted to this post coz I thought short selling the banks was banned since Black St Patrick's Day 2008 And sure enough when I look at the IG link I find that short selling of AIB shares is *not* allowed.

As to whether it would be a good thing to short, if allowed, is an interesting question.

CEO David Duffy reckons the bank is worth 10bn, that's 2c per share.  I talked to a stockbroker friend and he can give no explanation at all for the current price - except that it is small punters taking irrational gambles.

I wonder!  Let's say the Government offloads AIB for 10Bn sometime during the 2016 celebrations.

Now what will the acquirer think of those nuisance 1bn shares in free float?  Might just be worth €100m to be shot of them, probably a lot less than would be paid to middlemen in the transaction.  In fact the share price could be actually self fulfilling in such a situation.  The acquirer may feel obliged to offer the current share price and maybe a tad more just to clean the decks.

In any case this "irrational" share price has persisted for a very long time, I wouldn't bet on it reversing any time soon.

BTW spread betting firms don't take (or don't have to take) positions on shares, they are middlemen.  If they say their clients are 80% long on a share they will have that matched in the wholesale market.  At least that is my understanding.


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## Boyd (5 Dec 2014)

I thought we don't allow discussion of the valuation of shares on Askaboutmoney?


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## camel (5 Dec 2014)

Duke of Marmalade said:


> I was a bit surprised when alerted to this post coz I thought short selling the banks was banned since Black St Patrick's Day 2008 And sure enough when I look at the IG link I find that short selling of AIB shares is *not* allowed.



Duke, what link is that? I'm sure you're correct but I can certainly go partway through the process of shorting AIB through the IG app (tried just now)...obviously I'm not going to press the 'Place Deal' button! Maybe it gets blocked at that point?



Duke of Marmalade said:


> BTW spread betting firms don't take (or don't have to take) positions on shares, they are middlemen.  If they say their clients are 80% long on a share they will have that matched in the wholesale market.  At least that is my understanding.


Not 100% true I think, spread betting companies apparently often do take positions. Read Naked Trader by Robbie Burns.


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## camel (5 Dec 2014)

username123 said:


> I thought we don't allow discussion of the valuation of shares on Askaboutmoney?



Not sure who that is directed at but I was just discussing the mechanics - using AIB as an example.


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## Duke of Marmalade (5 Dec 2014)

camel said:


> Duke, what link is that? I'm sure you're correct but I can certainly go partway through the process of shorting AIB through the IG app (tried just now)...obviously I'm not going to press the 'Place Deal' button! Maybe it gets blocked at that point?


If you dig into the _Boss's_ link you will find a spreadsheet with all the companies traded. It says that short selling is not allowed on AIB. I presume that you would have been blocked before execution. 



> Not 100% true I think, spread betting companies apparently often do take positions. Read Naked Trader by Robbie Burns.


That's why I qualified my comment with _"don't have to"._ In fact most clients of financial spread bettors are long. If the spread bettors did not cover this off they would lose big time in bull markets. We see here a major difference between sports betting and financial spread betting. Bookies strive to balance their books, hence the name (but again not always, sometimes they take a deliberate position). FSB companies don't need to balance their clients' books as they have the wholesale market to hedge their positions.


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## Sunny (5 Dec 2014)

It is possible to short AIB shares. There is a lot of erroneous reporting on this. I think people latched on to it as a reason for the share price but the CB confirmed that there was no ban in place. Individual SB firms might not allow it but there is no regulatory ban. 

People should not touch AIB shares. Noonan issued the warning for a reason. People will get burnt. There is no institutional dealing in AIB shares at the moment so anyone who thinks they can profit where sophisticated hedge managers can't is deluding themselves.


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## tvman (5 Dec 2014)

just had a look there and there are about 1m shares traded every day (val c. €90K). Is this just mugs taking a punt and if there are mugs out there willing to take a punt - wouldn't some of the current holders of the shares offer them at a lower price to try and sell them for say 7c (i.e. 3.5 times their value)? Even very low volumes like this should see the price closer to its intrinsic value. Its pretty strange to see any transactions at this level of mispricing.


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## Brendan Burgess (5 Dec 2014)

Duke of Marmalade said:


> I was a bit surprised when alerted to this post coz I thought short selling the banks was banned since Black St Patrick's Day 2008 And sure enough when I look at the IG link I find that short selling of AIB shares is *not* allowed.



[broken link removed]

On 18  September 2008, the Financial Regulator introduced provisions to   prohibit the short selling of shares of Irish banks quoted on the Main   Securities Market of the Irish Stock Exchange. This prohibition was   lifted on 30 December 2011. The short sale prohibition did not apply to   shares in AIB from 26 January 2011 upon the transfer of the listing  from  the Main Securities Market to the Enterprise Securities Market of  the  Irish Stock Exchange,


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## Boyd (5 Dec 2014)

camel said:


> Not sure who that is directed at but I was just discussing the mechanics - using AIB as an example.



Sorry, I was mainly asking Brendan, the OP, as it is part of the posting guidelines that individual shares cannot be discussed. He is basically asking how to make money on AIB shares. I mean the title of the thread has the word "exploit" in it.....


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## Brendan Burgess (5 Dec 2014)

username123 said:


> I thought we don't allow discussion of the valuation of shares on Askaboutmoney?



Hi username

We made an exception in this thread 

http://www.askaboutmoney.com/showpost.php?p=1408420&postcount=1



> We have a posting guideline where     but the current overvaluation of AIB is so huge and so dangerous for  potential investors, that an exception to the ban  is justified.



This current thread is about the mechanics, discussion of which has always been allowed. 

Brendan


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## Duke of Marmalade (5 Dec 2014)

Brendan Burgess said:


> [broken link removed]
> 
> On 18 September 2008, the Financial Regulator introduced provisions to prohibit the short selling of shares of Irish banks quoted on the Main Securities Market of the Irish Stock Exchange. This prohibition was lifted on 30 December 2011. The short sale prohibition did not apply to shares in AIB from 26 January 2011 upon the transfer of the listing from the Main Securities Market to the Enterprise Securities Market of the Irish Stock Exchange,


I stand ejected


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## RichInSpirit (6 Dec 2014)

*Caution urged*

Hi Brendan,! 
As a spread betting user/enthusiast I would urge you to be extremely cautious with your plan. Spread betting, CFD's, mortgages, loans etc are leveraged products and there's a multiplier effect that can bite you on the bum if things don't go as you expect. 

At the very least do some sort of a business plan examining best and worst case scenarios.
When price goes in the opposite direction to where you think it should be with a leveraged position it can be terrifying! (I include house prices in that comment).


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## Brendan Burgess (6 Dec 2014)

Hi Richie

Thanks for the note of caution. 

If one believes that AIB is worth 2 cents and not 9 cents, then selling it short looks like a great bet. However, when a price has irrationally moved away from its fundamental value, there is no reason why it could not move to 18 cents or 27 cents. In the long term it will move back towards 2 cents, but I would have to make sure that my exposure was such that I would still be in the market when it comes down. 

I haven't spread bet before, so I will open an account and start with a warm up bet to see how it works. 

Brendan


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## camel (8 Dec 2014)

Brendan Burgess said:


> I haven't spread bet before, so I will open an account and start with a warm up bet to see how it works.
> Brendan



To be fair to the platforms, they're all good at providing a 'demo' account where you can trade away to your hearts content without real money, to get a feel for the system and your own strategy - IG, Shelbourne Market, Tradefair, etc.


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## Brendan Burgess (12 Dec 2014)

A good explanation of spread betting and how it compares to buying shares directly here: 

https://www.youtube.com/watch?v=ljVapz1aANA


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## Firefly (13 Dec 2014)

Hi Brendan,

Do we need to remove guideline 11 re posting about individual shares?

Firelfy.


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## Brendan Burgess (14 Dec 2014)

Firefly said:


> Hi Brendan,
> 
> Do we need to remove guideline 11 re posting about individual shares?
> 
> Firelfy.



Read through the thread. It's been asked and answered (twice) before.


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## Brendan Burgess (15 Dec 2014)

So, I opened my account.  There was some problem with making a lodgement and my account was suspended. Then they called me to discuss and  they told me that they don't allow shorting of AIB shares and they won't be allowing it any time soon.  But it's possible to go long on the shares. 

So it looks to me as if IG Index are keeping all the pigeons to themselves. 

Brendan


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## Bronte (15 Dec 2014)

Brendan Burgess said:


> So it looks to me as if IG Index are keeping all the pigeons to themselves.


 
Not that I really understand your mad share scheme  but who are keeping all the benefits of this 'bet', as in who is IG, can they do what you are trying to do, but you cannot.


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## Tintagel (15 Dec 2014)

[broken link removed]

Might be of interest.


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## Fella (15 Dec 2014)

I personally think this conversation shouldn't be happening as its a huge gamble and risk and people may follow thinking its a way to make easy money. 

I do some spread betting myself on sports. This is just a gamble and the figures been spoken about in the example of 70k etc is crazy imo.  

Just because the shares are 9c or whatever but should be 2c doesn't mean they will are going to revert to what they should be , the weight of money decides the price and I see lots of examples of this in gambling , it seems people want to own Aib Shares at 9c and whats to say they go up or go down from now? nobody knows what way they will move its a gamble your guessing totally weather they go up or down , just because you can see value doens't mean you can ever realise this value. This is the basis of a lot of my sports gambling , bookies enchance the price of something , those engaged in arbitrage inflate the back price on Betfair by laying it , the price on Betfair then becomes value but i can back this and never ever lay is shorter because of the weight of money against me. The weight of money against you means you will never possibly sell at 9c and buy at 2c . 

Spread betting is very risky you can lose a lot of money , please think before jumping in with 70k or whatever was quoted earlier in this thread. Don't listen to the Minister the price is 9c for a reason , if it was too high or too low the market is efficient enought to correct itself.


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## camel (15 Dec 2014)

Fella said:


> if it was too high or too low the market is efficient enought to correct itself.


Definitely not necessarily the case.

...anyway, I think posters here are uneasy as the thread initially began (and is still titled) about AIB shares. We then went down the route of examining the _mechanics_ of spread betting.

So if it keeps everyone happy maybe this thread should be retitled (is that possible mods?) to 'Spead-betting mechanics', or even 'Is it possible to exploit overpricing in Acme Ltd.'.


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## Fella (15 Dec 2014)

I agree with you , my post is brief , there is a lot you can write on this subject for reasons why you should not just short AIB because it is trading too high. 

I just wanted to point out that the whole idea is dangerous and very simplistic, and the person talking about putting 70k into a spreadbetting company is taking a huge gamble as the market is as likely to correct or not correct and price keeps going up. Your paying cost of spread etc and fees to take a gamble on something which is just that a gamble.


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## Brendan Burgess (15 Dec 2014)

Fella said:


> Spread betting is very risky you can lose a lot of money , please think before jumping in with 70k or whatever was quoted earlier in this thread.



Hi Fella 

I have been very critical of spread betting in the past and would normally never touch it as it is usually just a form of gambling. 



> Don't listen to the Minister the price is 9c for a reason , if it was  too high or too low the market is efficient enough to correct itself.



Surely short selling would be part of the process of making the market efficient. 

Back in the dot.com days, it was very frustrating seeing valuations unrelated to the fundamental value of the shares. Unfortunately, there was no way to exploit it.  As it happens, there doesn't seem to be anyway for someone who thinks that AIB is overpriced to exploit it either. 

But your point about risk is quite right.   If the "correct" valuation of AIB is 2 cents , I would be very tempted to short it at 4 cents. Then I would see myself being wiped out as the price becomes even more irrational. So at 8.5 cents, it might be a crazy price. But when a share loses touch with its fundamental value, it can go anywhere before it reverts eventually to its fundamental value.


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## Fella (15 Dec 2014)

I've tried a couple of my spreadbetting accounts and I can't short AIB so it seems they can't be shorted , which would be a main process in making the market efficient. 

Its an interesting subject why can't they be shorted i don't know , one thing you need to consider is once information is made public like everyone knows it's 9c and it should be 2c etc then its very hard to make money unless you where one of the first to know this.

I'd be concerned if you could short them and the info is public and they are still 9c then people in the know with vast amounts of cash that gamble haven't shorted the price sufficently to bring it back to true price you got to wonder why they aren't doing that.

So yeah, its not possible to short this it seems , and if it was I'd wonder why others haven't done this that do this stuff day in day out. I think its an interesting subject but if it was possible to short it we may see the price come in so thats theres no value but its always imo a gamble , unless your first with this info or you have knowledge that the market hasn't got.


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## RichInSpirit (1 May 2015)

After opening a a Demo account with Ig and tried an order to sell (short) AIB Brendan and it's not allowed. Aib is now an Esm market share on the Irish stock exchange and might be subject to different rules than the main market.


> ,Brendan Burgess, post: 1411623, member: 1"]So, I opened my account.  There was some problem with making a lodgement and my account was suspended. Then they called me to discuss and  they told me that they don't allow shorting of AIB shares and they won't be allowing it any time soon.  But it's possible to go long on the shares.
> 
> So it looks to me as if IG Index are keeping all the pigeons to themselves.
> 
> Brendan


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## Gordon Gekko (1 May 2015)

My understanding is that it's a technical point stopping people from shorting the stock. Something around the inability of the other side to actually get stock because of the lack of free float.

But in any event, if it was possible to do it, smarter people than us would be doing it.


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