AFTER THE SPLIT ANNOUNCEMENT – Quite often, the inventory will create a pattern of falling back three to ten days following the announcement. This provides you with a chance to benefit from the split announcement. If you’re playing calls this is when you purchase the things that they call» dipping undervalued calls». Many times you’ll have 2-4 chances to produce this play before the inventory actually splits. Just be sure to carefully observe the graph patterns to confirm that the stock is pulling back and that there’s a return to the upside. Establish your exit points by taking a look at the prior highs.
PAY DATE – Historically, this drama has very substantial odds of success and gain. If you’re playing options, this play has you buying the stock or option the day prior to the breakup. Pay careful attention to the stock pattern during the week of the stock split pay date. Hopefully, you should be observing an upward pattern or at least a channeling. Your best chances are to hold the choice throught the split ( note: you may now have twice as many choices because they also divide ). Sell your choices within 2-3 days of this split, your chances are better if you obtain the closest month of the» out-of-the-money» call.
And remember that there’ll always be other plays, so if the stock is tanking a couple of days before the pay day, do not play it! Await the next one to come across that meets these guidelines.
POST SPLIT PLAY – Normally, the leaders within their industry group, such as Dell Computer, Intel and Microsoft, those businesses that we the public and trading associations most readily recognize, have a better prospect of moving upward than the ones who do not split.
Here again, observe the graphs for a long dip and profit taking prior to buying long term «in-the-money» options. If you already have the stocks you’ll be able to write (sell)»out-of-the-money» calls to collect premiums and have good chances of being»called out» with a wonderful capital gain.