Category: Finance

The Biggest Debate in Europe: Brexit

The people of the United Kingdom have a perplexing decision to make on June 23. They must decide whether to stay in – or leave – the European Union. The upcoming vote, commonly referred to as “Brexit”, is expected to be a close one.

Above is a recent poll by Forex Capital Markets. The “remain” side wishes for Britain to stay in the European Union (EU), and the “leave” side wishes for Britain to exit. As we can see, the two sides are neck and neck in poll standings. With the popular opinion virtually split, let’s hear some arguments from each side:

Arguments to Leave the EU

Currently, the EU is burdening Britain with laws and regulations. These include excessive regulations on British businesses in areas like health, employment rights, etc. The EU also forces Britain to let in migrant workers from poorer European countries. These migrant workers then compete with British workers for jobs in unskilled labor. This drives down wages for the British working class. By leaving the EU, the UK can remove bureaucratic regulations, limit unnecessary immigration, and thus take back control of its economy. This is why people like Boris Johnson, Michael Gove, and Donald Trump support the “leave” side.

Arguments to Remain in the EU

Britain must remain and contribute to the EU- rather than abandon it- to protect its world status. According to the CIA World Factbook, the EU has an annual GDP second only to the United States (https://www.cia.gov/library/publications/the-world-factbook/fields/2195.html), making the union an economic powerhouse. If Britain were to leave the EU, then it would certainly have much less economic status than it does now.

Britain might also encounter a serious recession if it leaves the EU. Because of its enormous economic power, the EU is currently a major trading partner of Britain. If Britain leaves, it might see a significant reduction in trade, which could cause an economic downturn. Overall, staying in the European Union will be much better for Britain’s future. This is why people like David Cameron, Barack Obama, and Angela Merkel support the “remain” side.

Comparison to the Grexit Movement

The Brexit debate is quite similar to the Grexit controversy that occurred a year ago in Greece. Like Brexit supporters, campaigners for Grexit wanted increased control in their country’s borders. They wanted less of their laws made by the European Union and more of their laws made by their own governments. However, there is a key distinction between Brexit and Grexit. Greece was just considering leaving the Euro currency while Britain is considering leaving the European Union altogether. This is because Greece still needed the European Union to help revive its crumbling economy, while Britain may be able to survive on its own. Ultimately, the Grexit movement failed as Greece decided to remain a Euro currency member. As for the Brexit issue- we will have to wait until June 23 to find out.

– Ken Croker

Which side of the Brexit debate do you support? Leave a comment in the section below!

Trade #8: EBAY Strangle

Today in Finance Club, we decided that eBay looks like it is “going to move,” and one of the ways to play that is through a long strangle. This is a risky trade, and will probably go against us, but since this is paper money, we will place it and track it for the learning. This is the trade:

  • Bought 1 of the March 18th 2016 24 Calls for $0.46
  • Bought 1 of the March 18th 2016 23 Puts for $0.31

This results in a net debit of $0.77, for a maximum loss of $77 and an unlimited maximum profit.

– Michael and Nolan

Trade #7: IP Call Spread

Today in Finance Club, we placed a new trade on International Paper. We sold a call spread on IP, with a bearish thesis that IP will remain below $38.25 by March 18th. The trade is as follows:

  • Sold 3 of the March 18th 2016 38 Call for $0.35
  • Bought 3 of the March 18th 2016 39 Call for $0.10

This is for a net credit of $0.25, with a maximum profit of $75 and a maximum loss of $225.

– Michael and Nolan

Trade #6: Close XLU Call Spread

In the club today, we also closed our XLU call spread for a profit. XLU, even though it was up today, has remained below our thesis price and decreasing volatility and time decay have really helped us in this short trade. We bought back the 48 call for $0.08 and sold the 49 call for $0.02, resulting in a profit of $0.16 or with 5 contracts, $80.

– Michael and Nolan

Trade #4: IBB ETF Purchase

We decided to utilize more of our capital for long run investments, this time in the biotechnology sector with the iShares IBB ETF. We did the following:

  • Buy 4 shares of IBB at $258.78.

Our long term thesis is that biotechnology is a sector that will see tremendous advances. Biotech has pulled back and we see this as a buying opportunity.

– Michael and Nolan

Trade #3: XLU Call Spread

Today we placed a trade on XLU, this time with a bearish thesis. We did the following:

  • Sold 5 of the March 18th 48 CALL for $0.34
  • Bought 5 of the March 18th 49 CALL for $0.12

This led to a net $0.22 credit, for a maximum profit of $110, and a maximum loss of $390. Our thesis is that XLU remains BELOW $48.22 by March 18th.

– Michael and Nolan

Hillary and Biotech

Biotech companies should be kept from setting drug prices too high…. right? After all, shouldn’t consumers be able to afford life-saving drugs? Hillary Clinton sure thinks so. Recently, Daraprim, a drug used to fight AIDS, was bought by Turing Pharmaceuticals. The price “skyrocketed” from $13.50 to $750. Take a look at this tweet by president-wannabe Hillary Clinton:

“Price gouging like this in the specialty drug market is outrageous. Tomorrow I’ll lay out a plan to take it on. -H”

This tweet sent shares of biotechnology companies like Biogen Inc. (BIIB) down almost 8.5% in the following week. Shares of the tracking ETF “CURE” for biotech were down nearly 25% in the same period.

Hillary Clinton sure has a point. However, she is misunderstanding fundamental tenets of the free market, or at least pretending to misunderstand these basic truths in order to appeal to her uninformed voting base. Consider the motives behind even producing a lifesaving drug for a minority. In the past few hundred years, only recently have these drugs emerged. Were they created by individuals seeking to help others? Well, that was definitely one possible motivation, but most drugs were produced by companies seeking profits. These companies realized that some individuals with rare diseases were not going to be served by the majority of companies, who in turn thought that since there only were a few consumers, they would not be able to offset the expenses from research and development. The solution? Charging high prices.

High prices are the only way for companies to turn a profit producing a drug for a rare disease. If the government sets a “price ceiling,” which sets a maximum price a drug can be sold at, companies will no longer have an incentive to research these drugs. In effect, the government would be killing the industry and even killing those who would have benefited from the drug.

The common flaw pointed out in this argument is that consumers will not be able to afford these medicines. However, almost all legal citizens of the United States have health-care insurance coverage. Insurance companies are more than willing to charge premiums to consumers who wish to have insurance in the case of catching a rare disease. In effect, all the consumer has to pay for is the insurance premium. With the advent of dubious measures like the Affordable Care Act, even these costs may be offset by other citizens who can afford.

What is the solution? It is simple: Allow the free market to work. Insurance companies are willing to pay high prices, and pharmaceutical companies should be able to charge whatever price they want. If their price is too high, insurance companies will not be willing to support the drug, and there will be no demand, and the price will be automatically lowered to increase revenue for the pharma company.  Supply and demand will work out the price, and government price ceilings can be shelved.

At the Finance Club, we are aware that Hillary Clinton is a very educated individual. However, we also understand that she has to appeal to voters who have not had the opportunity to consider these basic economic facts.

 

– Finance Club

Comments? Arguments? More than welcome! Reply to this post, and you may even get a response.