Speculate - Index Additions/Deletions SCENARIO WASHINGTON POST ADDED TO S&P 500 On December 19, 2007 Standard and Poorâ€™s announced that Washington Post will join the S&P 500 on December 28. STRATEGY Typically when a stock joins an index fund, managers that track the various indices will need to rebalance their portfolio. This often means that from the date of announcement to the date of official inclusion there will be buying seen in the stock leading up to the inclusion date. Our strategy is to buy on the date of announcement and sell on the date of inclusion.
HOW TO EXECUTE THIS STRATEGY Opening trade: Buy 100 WPO:xnys @ $769. Profit target: Stop Loss:
Place Limit Sell order for 100 WPO:xnys @ $810. Place trailing stop to Sell 100 WPO:xnys distance to market $20, trailing step $2.
COSTS We buy 100 WPO:xnys CFDs @ $769 upon the release of the news. WPO is margined at 25%. We contribute $19,244 as margin requirement and pay interest of $11.76 per day as we are long. Nominal value of the trade is $79,976. Profit target is set at $810 where we sell the CFDs. A trailing stop is placed to protect our position set at distance to market of $20.00, trailing step $2.00. RISK/REWARD If the Washington Post doesnâ€™t go up at all then our trailing stop would sell the CFDs @ $749 realising a loss of $2,000 or $20 per CFD. If our profit target is reached then we sell the CFDs at $810 realising a profit of$4,100 or $41 per CFD.
How to take maximum advantadge of CFDs.