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09 Aug | Berkeley Mineral Resources – Limited Downside

As investors we’re always on that elusive search for the no brainer trade – the investment that just can’t lose.

Well I can’t say I’ve found an investment with absolutely no downside yet, but by utilising spread trading and taking advantage of the markets where they stand at this point in time, I’ve found a deal or two that come pretty damn close.

Let’s take a look at one I prepared earlier:

Berkeley Mineral Resources. I’ve written about them enough of late and I topped up again on Friday – buying another 110,486 at 2.07 pence a share – but that’s beside the point.

Berkeley currently trades between 2.10 and 2.20 pence a share. Now the bulls out there will tell you that on recent news – and assuming ceteris paribus (which we certainly ain’t got at the moment) – Berekeley should be trading in double digits at least – 10 pence or above. Now for whatever reasons (there’s enough of ’em) that ain’t happening.

Whilst our bearish friends would have trouble convincing too many that Berkeley could halve in value again from here to one pence. It’s a possibility sure, anything seems possible at the moment but it’s unlikely, in my opinion at least.

So we’re in a situation where the addition of one pence to the share price is much more likely going forward than dropping of one pence.

If we use two pence as the amount in question, it becomes much more plausible moving forward that Berkeley will trade at 4 pence than well below half a pence.

Three pence is only a possibility on the upside as shares don’t trade in the negative. You see where I’m heading….

By going long on Berkeley at say £500 pounds a point at 2 pence (for the sake of round numbers), the worse case scenario (were Berkeley to go under) is a potential loss of £1,000 (2 x £500).

If Berekeley make their way to 10 pence then you’d be in the black to the tune of £4,000 (8 x £500) on your spread trade.

Now if we get to the magical £1 mark – yeah right, I hear you cry – that Masoud Alikhani (Chairman of BMR) spoke of late last year, then book that cruise baby, you’ve just earnt a cool £49,000 (90 x £500) and entered the world of the super rich, well, relatively speaking.

I guess my point is, is that at these levels, Berkeley can only drop so far. That the potential upside (undefinable) far, far outweighs the potential downside (2.2 pence).

I’m a little too deep into gold on my spread betting account to give this a whirl but the basic figures are there for all to see.

Thanks again for dropping by.