The Real Play with Stock Splits: Making Money with Options

Yesterday we talked about some of the myths and facts about stock splits.

Today I want to talk to you a little bit about stock splits and how to capitalize on them effectively.

Back in the old days, when a stock split, it was big news because it usually meant the stock would go up.

The idea was that a high priced stock locked small investors out, and after a split, the stock became more affordable and attracted more small mom and pop buyers.

But here’s the thing — just because a stock splits, it doesn’t mean it’s suddenly going to double in value.

The stock’s price alone doesn’t determine its movement; volume does.

And that’s where a lot of people get it wrong. They wait for the split, rush in, and scoop up shares, thinking they’ve struck gold. But that’s not the play.

When a company does a stock split, it doesn’t change the company’s capitalization; it just increases the number of shares. XYZ company was worth $800 billion before the split, it’s still worth $800 billion after the split.

The company’s value remains the same, but each share is worth less. For example, in a 10-for-1 split, each share becomes a tenth of its original price.

Now, here’s the real opportunity: options. When a stock splits, the options also split.

This makes them more affordable, especially for the average investor. But instead of buying these options, I use the stock as an asset to create cash flow by selling call options. The premiums on these call options — especially for some of the hottest stocks like NVDA and AVGO — are insanely high.

Let me give you an example. Take a look at a call option that expires a month out on a stock like AVGO or NVDA.

Look at the strike price and the value of the call option.

Divide the price of the call by the price of the stock, and you’ll see what your yield is for that 30-day period. These yields are much higher in volatile stocks than in more stable ones like Altria (MO) or AT&T (T).

The premiums on call options for these volatile stocks — especially in the AI and tech sectors — are at an all-time high.

So, when AVGO splits this coming Monday, the play WON’T be buying up a bunch of AVGO shares after the split.

Instead, the right play will be using that stock to sell overpriced call options and make a killing.

I just went live to talk about this — and exactly how I plan to play it. Click here to check out the replay.

Trade well,

Jack Carter

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