Stock Splits and Reverse Splits
Chapters in this video
- 0:00 Forward stock split: the pizza analogy
- 1:03 The math shortcut: find the factor
- 2:22 Forward splits do not create value or tax
- 3:24 Reverse splits: delisting survival at $1
- 4:40 Fractional shares paid in cash
- 5:36 Open orders: adjusted versus cancelled
- 6:32 Options contract adjustment mechanics
- 6:57 Rapid-fire exam recap
What this video covers
- Why total investment value never changes in any stock split, despite more or fewer shares appearing in the account
- How to calculate post-split shares and price using the greater number in the ratio as the factor, for both forward and reverse splits
- Why a 3-for-2 split is a favorite exam calculation, and how to avoid the decimal trap when dividing the price
- Why forward splits are neutral or positive signals (affordability, liquidity) while reverse splits are negative signals tied to delisting avoidance
- The critical back office distinction: forward splits adjust open good till cancelled (GTC) orders, reverse splits cancel them completely
- How options contracts are adjusted after any split so total contract value remains identical
- Why cost basis per share changes but total cost basis does not, and why splits are never taxable events
Read the full lesson, free
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