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30 Cards in this Set
- Front
- Back
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Why do companies split their stock?
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To make it more affordable to a larger group of investors in hopes the investors will be more inclined to purchase stocks.
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Does a stock split technically change the value of the company or the value of a shareholder’s stock?
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NO. But it often creates some positive effects that make stock splits popular with option investors.
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What brings so much attention to stock splits? Why, what have studies show?
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The herd mentality – studies have show that the strong performance of stock splits attracts attention in the short-term trading opportunities surrounding the split.
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What does a stock split do, exactly? Give an example.
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Lowers the price of the shares and increases the number of shares
For example, one share that is $50 becomes two shares for $25 |
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Who decided when to split stock?
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The management of a company, specifically the board of directors
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What does a (2:1) split mean? What happens to the price when a split occurs?
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All current shareholders receive an additional share of stock for every share they own.
Split = Stock price lowers by half. Same $ worth of the company’s stock, but you own twice as many shares |
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What are the 2 most common stock splits in order of the most common? Which other splits are there that are less common? (2)
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Most common = 2:1 and 3:2
Less common = 3:1 and 4:1 |
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What does the company give the shareholders in a (3:2) split and what happens to the price?
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One new share for every two shares they own.
Price is adjusted accordingly. |
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The higher the ___________of the stock split, the more exiting it is to the crowd
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RATIO
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Can options be split just like stock? What happens to the number of contracts and the strike price?
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Yes. The contracts are multiplied and the strike price is reduced.
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When is the need for a stock split created? What do most stocks that have split have in common at the time of the split?
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When the company has done very well and the stock price reflects their outstanding performance.
Solid growth and bullish trends at the time of the split – common trait of nearly every splitting company. |
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Why does a company’s need for a stock split bode well for investors who follow splits?
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The companies splitting are generally solid companies to begin with.
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The magnitude of favorable moves generated by a stock split is closely related with the WHAT of the over all market?
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TREND
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Explain WHY An investor must be aware of the trend before aggressively playing stock splits.
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When the market is strong and moving up - these moves can be dramatic and sustained. When the market is weak and falling - the moves may not exist.
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Why are stock splits generally a ___-market strategy?
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BULL
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While some stocks may split during a bear market, the MAGNITUDE of the expected move is significantly less due to the ____________
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BEARISH SENTIMENT
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In a bearish sentiment, while you may see a rise in the stock upon the announcement, increased selling can often quickly _______ that rise.
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Offset
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When analyzing a stock split in a bull market, what do you want to look for when analyzing these exiting opportunities?
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BULLISH SENTIMENT
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When are the 5 key points of a stock split?
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When are the 5 key points of a stock split?
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Why will understanding the 5 key points of a stock split enable you to take advantage of?
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The often, predictable price movement that occurs around a company’s stock split.
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When is the best time to invest in a stock split? Why?
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BEFORE the (split) announcement – You benefit from the addt’l attention the announcement brings, which usually results in the buying of the stock.
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When does “all the excitement begin” for the stock split?
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AFTER the announcement
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Split announcement commonly bundled with a good ____
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EARNINGS ANNOUNCEMENT – so be aware of earning announcement dates for potential split candidates to potentially plan your stock split plays.
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How much of a surprise it is to the market is another things to consider is buying a stock in expectation of the good news, and the stock may run in advance of the announcement and then go flat or possibly fall, after the news is released, withteh popularity of playing stock splits in the recent years, more and more stocks run up in advance of an earnings announcement in anticipation of the stock
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If a split announcement doesn’t materialize these stocks quickly go down after earnings released
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Which types of stocks are more likely to get the attention of the investor crowd with the likelihood of a split?
What type of companies are they usually? Which ones are they not? Explain both |
HIGHER VOLUME STOCKS
LARGER, better known companies. (small unknown companies don’t have the large following needed to create the typical movements of a stock split.) |
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If you decide to play options on stock splits, when are the entry price points?
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Just prior to or AT the announcement, and then again a week to 10 days prior to the actual stock split.
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What is the biggest mistake split investors make?
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Getting in too late, after an announcement
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Why do many investors get int too late when playing options on stock splits and then find themselves in a apposition thought to get out of with a profit?
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Because announcement runs are often SHORT
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IF a stock takes off after an announcement and you didn’t get in early, don’t _____! There will be other opportunities. What do you want to wait for in these “other opportunities”
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Chase it!
Wait for the PULLBACK and then be ready for the split run. |
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Trades on a stock split are usually short and fast.
What will help so that you don’t get caught in the post-split depression? |
-Plan your exits after the announcement run and on or before the split day!
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