An incremental system for spread betting on the S&P 500

14th Apr '21 by William K

3 comments 673 reads

In the short term, spread betting on the S&P 500 Index can seem a risky occupation. But in the longer term, it’s no more risky than investing in an S&P 500 tracker ETF such as £VUSA . And it has the advantage of lower costs plus the benefits of margin and guaranteed stop losses if required. A bet of £1 a point requires a margin of about £210 and costs around £1 per quarter. The minimum distance for a guaranteed stop loss is only 10 points with some brokers.

As a mathematical exercise, I have produced a spread sheet of a spread bet model showing how it is theoretically possible to maximise returns from an initial stake of a £1 a point by increasing the stake by £1 a point each time the index rises by 250 points.

Risk is managed by setting a stop loss on the second bet at the entry point of the first bet. When the index rises another 250 points, the stop loss for the first and second bets are set at the entry point of the second bet (and so on with each further rise of 250 points). Please note I don’t use a stop loss on the newest bet although this is just a matter of personal preference. The reason for this is that the newest bet might get stopped out too quickly. The bettor accepts the risk of a £1 bet having no stop loss or else places a stop loss well away from the opening zone, otherwise the whole process might have to start again from scratch.

It will be noted on the spread sheet below that the first date is 3^rd March 2019. This shows what happens to the bet as it approaches the Covid crash of February/March 2020 and what happens as the S&P 500 recovers. The maximum drawdown is £458 and the unrealised profit on 28^th March 2021 is £3,750. This represents a 136% return over 2 years against an initial hypothetical risk of £2,750. Some patience is required as the system does not start to make a substantial profit until about 18 months after the initial bet. For bettors in a hurry, the incremental intervals could be reduced to 100 points, but this would result in a much larger number of stop outs, and restarts.

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Jimmy O'Toole

17th Jan

It's very rare to find long term spread betting strategies online. Have you extrapolated your table out to 2024 / today?

William K

20th Jan

Date	Stake	S&P 500	Nominal	Unrealised	Taken	Stop Loss	Positions	Maximum
		Level	Holding	Profit	Profit	set at	with S/L	Risk

14/10/2022	£1	3500	£3,500	£0	£0	0	0	£3,500
26/10/2022	£2	3750	£7,250	£250	£0	3500	1	£3,500
24/11/2022	£3	4000	£12,000	£750	£0	3750	2	£3,500
06/06/2023	£4	4250	£17,000	£1,500	£0	4000	3	£3,500
18/07/2023	£5	4500	£22,500	£2,500	£0	4250	5	£3,500
23/10/2023	£1	4250	£4,250	£750	£500	0	0	£3,500
22/11/2023	£2	4500	£9,000	£1,000	£500	4250	1	£3,500
02/01/2024	£3	4750	£14,250	£1,500	£500	4500	2	£3,500

Hi Jimmy,

Many thanks for your interest.

I'd almost forgotten about this post, which I've just reread. It contains an error regarding the cost of a £1 bet on the SPX. It's currently around £45 a quarter, and it would have been around £20 a quarter at the time I posted it - the current interest rate is about 4% pa for index bets, so maybe £170 pa for each £1 on the SPX. Apologies.

I've refined this system so I no longer use it although it worked well until the end of 2021. If adhered to rigidly, it loses a lot of unrealised profit when the market wobbles. so it's worth considering g a tight trailing stop loss on some of the winning bets.

The spread chart on the preceding post shows what would have happened if we'd started the system in October 22 when the SPX bottomed out at 3500. You would currently have realised a profit of £500 with £1500 unrealised. The costs would have been around £700.

Potentially a net return of £1300 on a mean nominal sum of about £12,000. Say 10% or 11%.

The system is inherently safe - in spread betting terms - and so it's scalable depending on the punter's appetite for risk. And patience. If your spread betting account holds £10,000, you could use maximum margin and bet on a nominal sum of £200,000. A 10% return on that could give you £20,000 profit over 15 months (depending on the variables ). In theory, in favourable market conditions, the system could return !00% pa for an acceptable risk - subject to building up your bet slowly.

This is not advice. If your account is worth £10,000 your initial bet should be no more than £1 a point. If the SPX crashes 50% your drawdown would be £2,400 at the current level without a stop loss. That would leave you £7,600 to use on buying opportunities. . At £5 a point you would be wiped out. Margin calls are not nice.

Best wishes,

William

An incremental system for spread betting on the S&P 500

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William K

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