Do stock splits raise the stock price?įundamentally, a stock split shouldn't have an effect on the stock price. Stock splits shouldn't be confused with public offerings of stock, where new stocks are issued by the company for sale to the public to raise money to support the business. Companies with high share prices may not be admitted if they would disrupt the weighting too greatly. Because stock price directly affects the weighting in this index, it's a component considered for acceptance into the Dow. For instance, the Dow Jones Industrial Average, or Dow, is a prominent stock index that's price-weighted. There can be other strategic goals as well. The stock also becomes more accessible to employees who receive stock-based compensation, like they do at Tesla. Most often, a company foresees major growth on the horizon and it wants to keep shares at an accessible price for retail investors. Why do companies split their stock?Ī company may issue a stock split for many strategic reasons. This scenario gives you more flexibility in your choice to exercise or sell.
For example, if you have a $900 strike call and a 3-to-1 split takes effect, you'd end up with three $300 strike calls. Options are affected the same way shares are, assuming they expire after the day of the split. If you owned one share of the company, on the day of the stock split, that one $300 share would turn into three $100 shares. In other words, consider the 3-to-1 stock split in regard to a stock priced at $300.
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