Understanding stock splits

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Stock splits offer a unique opportunity to invest in the market that is typically unavailable daily. Learn more about how the stock divides, including the coming Apple 4-for-1 stock split and the Tesla 5-for-1 stock, can impact your investment portfolio and plans for investing.

What is a stock split

Stock splits are a form of business move that happens when a company’s board of directors decides to split the outstanding shares of the company into a smaller or larger quantity of shares. A split alters the number of shares outstanding of the company’s stock, but without changing the owners’ ownership percentages in the business. For instance, with a 2:1 split, a customer will receive two shares for every share held before the date of the time of stock’s date of split’s ex-dividend (or “effective”) day.

There are two kinds of splits in stock:

Forward splits are a company’s stock division into a greater number of shares. For instance, when a stock is a three-for-one split (3:1), every prior share is now equivalent to 3 shares. The cost per share would also decrease. In this case, in the case of a pre-split share valued at $9, the share after the split will be valued at $3. Typically, splits are decided by directors and then approved by shareholders.

Reverse splits can result in a decrease in the number of outstanding shares. For instance, if you had 300 shares in XYZ and a one-to-three reverse division (1:3), the old 300 shares would be equivalent to 100. The cost of each new share would also be greater. If the share before the split had a value of $2, the new shares would be worth $6.

If you hold an open position in an investment with a forward split, shares will be released out of (NOT credited in) accounts. In addition, the short position you hold is greater because of the split.

Fractional shares: United Stock Brokers does not debit or credit fractional shares of stocks. If you are awarded several fractional shares from the split that is not paid, they will be taken off and added to your account in cash. Cash instead of fractional shares is usually paid out after the split shares have been paid.

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How AAPL's stock split could impact your account?

Apple Inc. (AAPL) recently announced a recent 4-for-1 stock split. The split will take effect on August 31 for shareholders who that record on August. 24. The split occurs instantly in your account, and you don’t have to perform any actions. United Stock Brokers does not charge fees for this kind of stock split.

If you hold shares of AAPL before the market’s opening in August. 31, you’ll own four shares per share that you own. The stock’s value will decrease to one-fourth of its value when it begins trading in August.

  1. If, for instance, you own 100 shares of AAPL, which trade for $400 per share at the time of the split, you’ll have 400 shares worth $100 per share. If you also own one option call with an expiration date of $400, at the time of the split, you’ll have four contracts that control 100 shares each at the strike price of $100.

If you decide to sell AAPL shares following August 24, but before August 31st, you’ll offer them for sale at the pre-split price. The shares you sell will not be entitled to the split shares. For instance, if on August’s final day of trading at AAPL 28th, you trade 300 shares at the pre-split market rate of $400 per share, and you’ll receive $120,000. There will be no shares split.

If you purchase shares on or after August 24, but before August 31st, you’ll buy shares at the pre-split cost. After the split, you will be able to receive additional shares that result from the split.

Example: If, for example, on August. 26, you purchase 100 shares (and hold them until the opening on August. 31) at $400 per share, you’ll be paying $40,000. In addition, you will receive 300 shares following the split, which will then be decreased to reflect the post-split price.

How TSLA's stock split could alter your account?

Tesla Inc. (TSLA) recently announced a five-for-one stock split. The split will take effect on August 31 for each shareholder in the record. 21. The split takes place automatically within your account, and you don’t have to perform any actions. USB is not charging any fee for this kind of split. USB us

Suppose you owned shares of TSLA before the market opening in August. Thirty-one, you’ll own five shares per one you own, and the price of TSLA shares will be reduced to one-fifth of its value at the beginning of trading in August. 31. If, for instance, you own 100 shares of TSLA, which are valued at $1500 per share, at the time of the split, you’ll have 500 shares worth $300 each.

If you also own one option call that controls 100 shares and the strike price of $1500, you’d own 5 contracts and over 500 shares with 300 strikes after the split.

If you decide to sell TSLA shares following the record date of August 21, for TSLA, but before August 31, you’ll offer them for sale at the pre-split price. The shares you sell will not have the right to split shares.

In the example above, if on the final commercial day to trade TSLA August 28th, you sold 100 TSLA shares at an un-split price of $1,500 per share; you will get $150,000. There will be no split shares.

Suppose you purchase TSLA shares before the record date but before August. 31st, you’ll buy them at the pre-split price. After the split, you’ll be able to receive additional shares from the split.

Example: If, for example, on August. 26, you purchase 100 shares (and keep them until the close the following day, August. 31) at $1,500 per share, you’ll be paying $150,000. You will get 400 more shares following the stock split, and the cost will be decreased to reflect the post-split price.

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