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

[Boyd]

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.....

 

[Brendan Burgess]

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

 

[Duke of Marmalade]

[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

 

[RichInSpirit]

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).

 

[Brendan Burgess]

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

 

[camel]

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.

 

[Brendan Burgess]

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

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

 

[Firefly]

Hi Brendan,

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

Firelfy.

 

[Brendan Burgess]

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.

 

[Brendan Burgess]

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

 

[Bronte]

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.

 

[Tintagel]

[broken link removed]

Might be of interest.

 

[Fella]

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.

 

[camel]

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.'.

 

[Fella]

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.

 

[Brendan Burgess]

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.

 

[Fella]

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.

 

[RichInSpirit]

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

 

[Gordon Gekko]

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.