The Library – What’s a T-20?

For most novice investors – the term T-20 might sound more like a cricketers game than an equity trading term. Here’s a quick overview on ‘T’ trades.

When you purchase an equity stock whether it is via your online trading platform or via your telephone broker – you have options on your ‘trading terms’. The default term is known as a T-3. This essentially means that you are buying the stock on a 3 day settlement. As an example, you purchase stock ‘A’ on Jan 20th, and the full cost of the deal including fees will be debited from your account on day 3 which would be Jan 23rd (assuming no bank holiday’s are involved). The settlement period works on the basis of a ‘working day’ calendar and thus weekends are not included in the settlement period.

The ‘T’ settlement system is widely available via most brokers and the typical periods are as follows: T-3, T-5, T-10, T-20 and T-25. Remember – these are ‘working days’. Therefore, a T-25 is equivalent to 25 working days which can be (depending on the month) a full calendar month ‘extended’ settlement period.

So what’s the advantage? Simple. If you purchase on a T-25, then you do not have to provide the full settlement of the deal until the 25th working day. This effectively provides you with a  ‘loan’ facility. However – there’s a catch!

If you make a T-25 trade, then you normally incur a ‘premium’ to the default T-3 offer price. The broker may ask for an extra 1% or 0.5p or 2p etc on top of the offer price. It’s known as a ‘premium’ to the ‘offer’ price. It varies depending on the liquidity of the stock. Active stocks with plenty of daily volume can often offer T-25 trades at the same price as T-3 trades. It changes frequently.

Whilst there are clear advantages in trading on a T-10 or T-20, it’s important to work out whether the advantage gained offsets the premium paid. Furthermore, you must be confident of having the funds in place to meet the settlement date. If you do not have the funds, then you will have to ‘settle’ the trade before the T-xx date. This requires that you sell the stock 3 working days before the settlement date.

Stocks go up and down and there is no guarantee that you can sell your stock for a profit. Therefore, if you’ve purchased a stock for £5k on a T-20 and don’t have the funds to settle, then you have to sell the stock on day 17. If the stock has fallen by 50% in that time period – then you will not have enough funds from the sale to settle the £5k. In effect, you will need to find a further £2.5k to pay your broker. This is the danger and risk involved. That’s why you should always trade within your means and never over stretch yourself. You could lose all that you invest. It’s worth noting that you can ‘sell’ or ‘close’ the T-trade at any time. You do not have to wait until the final settlement date. If you sell a T-20 deal just 2 day’s after it was traded – then your funds (whether debit or credit) will hit your account on the 20th day regardless of you selling 18 days early.

T- trades beyond the usual T-3 settlement periods are usually for more experienced investors/traders who want to respond quickly to changing market conditions.

A ‘rollover’.
The term ‘rollover’ often refers to a T-trade that has been ‘rolled over’. Many traders will simply continue the T-trade for a further 20 days once it expires. This means that they have to sell the stock and then repurchase it. You may have observed a 10k sell on the stocks trades list which is then swiftly followed by another 10k purchase. The difference in the trades is sometimes around 0.5% or 1%. This could be a ‘rollover’. The trader or investor has simply continued another T-period. Trading using T-trades can have CGT implications and you should a consult your tax advisor for more information before trading.

1. T-trades allow you to purchase stock at a time when you might not have the funds available to purchase them immediately.

2.  An extended settlement allows you greater flexibility of trading. Depending on your broker and your credit worthiness, you can access greater funds than are immediately available to you.

3. Buying and selling equities is subject to fees and tax implications (CGT). A rollover trade will incur fees for buying and selling as well as any stamp duty that may be required.

4. It’s dangerous to over expose yourself and over stretch. You should only invest what you can afford to lose. You should always consult your broker or an FSA regulated financial advisor to discuss your individual circumstances.

CAZA presentation feedback – Arran spud imminent

Caza presented at the Proactive Investors Conference last night and I’ve received a number of feedback comments from investors that attended. Thank you to those that contributed.

Here are the highlights summarised:
Arran Spud is imminent (possibly within the next two days). This drill is the company maker with transformational results if successful. Like the recent success made by MXP – the CAZA well is a “4-way closure” which is known in the industry as being one of the best geologically. When pushed for a valuation upon success, McGoldrick cited £500mln based on the independent resource assessment. This is the high end number but if they do achieve this, then the sp has the potential to rise 5 fold (500%). Lots of if’s and but’s! But the CoS is relatively high near 35% which is double the success rate of many other drills targeting such high resource numbers (like DES and CHAR etc).

McGoldrick emphasised the 3D seismics program and was bullish about the detail and volume acquired. Texas and Lousiana seismics covers 8,000 sq miles. That is decent.

The Arran drill is expected to take around 60 days and they may require a further month for testing.

So pop Mid March in your diaries – and look out for Spud news and sp momentum over the next few days and weeks as we near TD.

Ithaca to test £2?

Now there’s an enjoyable question to posit or answer! It’s been almost 9 months since Ithaca touched 195.5p. A lot has changed since then after they did a large share placing later in 2010 to fund their production expansion to 22kbopd.

The dilution was circa 30%, so any return to test £2 will feel more like IAE touching 250p in old money! The stock is trading well (currently 294 cents) over on its main market TSX (canadian) where it has topped 2mln volume today and there’s still over 2 hrs to go before close.

A close above $3 would set up an LSE open tomorrow at circa 191p subject to F/X. $3 is a psychological level and if it breaks $3, I can see a push to test 320 cents shortly after. That’s enough to break the magical £2 on LSE which would be a great achievement and please many investors.

Why so impatient?

I recently read a post on iii bb as follows…

“I know this share will come good it’s just that you seem to have to put up with a lot of s&*t to get there.” END.

The above comment just about sums up the state of the markets and pi sentiment at present and it’s nothing short of insanity. Why do so many investors expect such easy and quick profits/growth?? 2009 and 2010 has clearly spoilt some. This is not a risk free money printing environment. Equities take time to deliver. E&P’s in particular can hit several dusters before they bag the big one. Ask any Tullow investor. Investors need to be more realistic about 2011 and future years.

The easy money has gone – it’s now down to picking stocks that have great value vs risk rewards that suits your own investing strategy and risk appetite. We are only 2 weeks into the new trading year and I can sense a number of investors getting frustrated and bored with 10% or 20% rises. It’s barmy! Historically, a 5% return on Equities would be a great result against a typical savings interest rate of 3%. 2010 ended in a bullish fashion and there’s no reason why it cannot continue if general economic indicators, sovereign debt and company earnings can all progress well. I believe 2011 will be a year that rewards the smart investor and not the impatient one.

Nautical – Well spud imminent.

SBS Typhoon departed Aberdeen enroute for Galaxy 2 today. ETA weather permitting is circa 9pm. This should allow for a Spud of either late tomorrow or Saturday.

Nautical are targeting 3 key zones in Burgman each with variable CoS and oip estimates. This graph from the Nov 2010 AGM presentation aptly demonstrates the potential. After the recent success on Varadero, Burgman has been derisked – however, it’s worth noting that the Jurassic target is very low CoS. It’s still undecided whether they will drill Catcher North next. It’s all down to the weather window as Burgman takes longer to set up.

Another success and Nautical will then proceed to next well. Exciting times ahead. The drill should take approx 21 days although Burgman could take longer as 3 zones could require more time. Nautical tend to specify a drill time estimate when they issue the Spud rns which should be on Monday.

Ithaca on the move

Ithaca looking strong after several brokers have upgraded their targets.

Highlighted on BNN last night for the 3rd time. Currently 183p or $2.88 on TSX. I think momentum is with this stock at present mainly due to oil price but also projected oil rev/ramp up in Q4 2011. There’s a good chance this one could break $3 very soon indeed.
See BNN 12 Jan 2011 – and scroll to last couple of clips. I have a lot of time for Andrew Cook – he’s a smart cookie.