Understanding stock splits

Stock splits are a singular opportunity in the market that usually not available every day. Learn more about how stock divide, which includes the upcoming Apple 4-for-1 stock split and Tesla 5-for-1 stock split, can affect your portfolio and investing plans.

What is a stock split

A stock split is a type of business action that comes when a company’s board of directors chose to divide the company’s outstanding shares into a bigger or smaller number of shares. Splits are a change in the number of outstanding shares of a company’s stock without a change in shareholders’ ownership percentage in the company. For example, with a 2:1 split, a client will receive 2 shares for each share owned previous to and through the open on the security’s split ex-dividend (or “effective”) date.

There are two types of stock splits:

Forward splits are the division of the outstanding shares of a firm into a larger number of shares. For example, in a three-for-one stock split (3:1), each previous share is now equal to three shares. The price per share would also go down. In this example, if the pre-split share was worth $9, the post-split share would be worth $3. Usually, splits must be voted by directors and approved by shareholders.


Reverse splits 
are a lowering in the number of outstanding shares. For example, if you had 300 shares of XYZ and there was a one-to-three reverse split (1:3), your old 300 shares would now be equal to 100 shares. The price of each new share would also be more. If the pre-split share was worth $2, the post-split share would be worth $6.

When you hold a short position on a stock that has a forward split, the shares will be spout from (NOT credited to) your account. Most importantly, your short position is increased due to the split.

Fractional Shares: United Stock Brokers does not credit or debit fractional shares for stocks. If you receive a fractional share from a split, it will be knocked off and credited as cash to your account. Cash in lieu of fractional shares is often paid after the split shares are paid.

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How AAPL's 4-for-1 stock split can affect your account

Apple Inc. (AAPL) recently announced a 4-for-1 stock split. The split takes effect on August 31 for shareholders of record on Aug. 24. The stock split happens automatically in your account and you are not required to do anything. United Stock Brokers does not charge a fee for this type of a stock split.

If you own shares of AAPL before market open on Aug. 31 you will own four shares for every one you hold, and the stock price will be reduced to one-fourth of its value at the start of trading on Aug. 31. For example, if you hold 100 shares of AAPL trading at $400 per share, after the split you will own 400 shares valued at $100 per share. Likewise, if you own one options call with a strike price of $400, after the split you would own four contracts controlling 100 shares each, at a $100 strike price.

If you sell AAPL shares after Aug. 24 but before Aug. 31, you will sell them at the pre-split price. You will not be entitled to the split shares. For example: If on the last business day of trading AAPL, Aug. 28, you sell 300 shares for a pre-split market price of $400 per share, you will receive $120,000. You will not receive any split shares.

If you buy shares after Aug. 24 but before Aug. 31, you will purchase shares at the pre-split price. Following the split, you will receive the additional shares resulting from the stock split. For example: If on Aug. 26 you buy 100 shares (and hold them through the open on Aug. 31) at $400 per share, you will pay $40,000. You will receive 300 additional shares after the stock split, and the price will be reduced to the post-split price.

How TSLA’s 5-for-1 stock split can affect your account

Tesla Inc. (TSLA) recently announced a 5-for-1 stock split. The split takes effect on August 31 for each shareholder of record on Aug. 21. The stock split happens automatically in your account and you are not required to do anything. USB does not charge a fee for this type of a stock split. USB us 

If you own shares of TSLA before the market open on Aug. 31 you will own five shares for every one you hold, and the stock price will be reduced to one-fifth of its value at the start of trading on Aug. 31. For example, if you hold 100 shares of TSLA trading at $1,500 per share, after the split you will own 500 shares valued at $300 per share. Likewise, if you own 1 options call controlling 100 shares with a strike price of $1,500, after the split you would own 5 contracts and control 500 shares at a $300 strike price.

If you sell TSLA shares after the record date of Aug. 21 for TSLA but before Aug. 31, you will sell them at the pre-split price. You will not be entitled to the split shares. For example: If on the last business day of trading TSLA, Aug. 28 you sell 100 TSLA shares for a pre-split market price of $1,500 per share you will receive $150,000. You will not receive any split shares.

If you buy TSLA shares after the record dates but before Aug. 31, you will purchase shares at the pre-split price. Following the split, you will receive the additional shares resulting from the stock split. For example: If on Aug. 26 you buy 100 shares (and hold them through the open on Aug. 31) at $1,500 per share, you will pay $150,000. You will receive 400 additional shares after the stock split, and the price will be reduced to the post-split price.

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