Tesla stock split this week. This means that there may be another wild week of trading.
Tesla (ticker: TSLA) On August 21, shareholders of record will receive a dividend of four additional shares of common stock, to be distributed after the close of trading on August 28. This is equivalent to a 5-for-1 stock split.
The shares are up more than 50% since the split announcement on August 11 – that’s right, more than 50%. Research on stock splits often shows that stocks can get a bump around a split announcement, but the recent upside is still a lot.
It predicts anyone’s guess what happens this week. Investors want to get into the stock before the split takes effect, believing that investors will buy lower-priced Tesla stock on August 31, which is when the shares start trading on a split-adjusted basis. On the other hand, a 50% increase in value is difficult to justify because the absolute value of any share price is low.
It may be that all the good news is already reflected in the stock price, and the shares will decline once the split takes effect. And don’t forget many brokers already offer fractional shares: Investors can own a piece of Tesla for $ 5.
While fractional share ownership is already one thing, a split can have one fundamental effect: option trading. For example, the Tesla September Call option, with a $ 2,080 strike price, cost about $ 180 to buy on Friday. An option contract is for 100 shares, so it costs $ 18,000 to buy a contract. When the full share price falls, the option price will fall.
It would be cheaper to trade Tesla stock options on an absolute basis. But one reason for this is not that the shares should rise or fall upon the announcement of division.
Tesla’s shares are now up nearly 400% year-over-year and over 800% compared to the previous year, crushing comparable returns from the Dow Jones Industrial Average and the S&P 500 as well as the automotive peer. It was at 0.8% on Monday at 12:45 pm.
It has been an incredible run, which is almost impossible to predict. Calling stock this week will not be easy.
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