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

Brendan Burgess said:
Is there any way to bet that AIB shares are overvalued? Is it possible to sell them short?
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Would one of the spread betting firms take a position on them, or facilitate both yourself and another party taking opposite positions perhaps ?
 
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.
 
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 ?
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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
 
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.
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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.
 
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.
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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
 
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
 
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 ?
 
Brendan Burgess said:
I checked IG Index and they don't seem to have a market in them.
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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.
 
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
 
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.
 
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).
 
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.
 
I thought we don't allow discussion of the valuation of shares on Askaboutmoney?
 
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.
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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.
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Not 100% true I think, spread betting companies apparently often do take positions. Read Naked Trader by Robbie Burns.
 
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?
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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.
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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.
 
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.
 
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.
 
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.
Click to expand...

[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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