Stock Splits

This is a discussion on Stock Splits within the Futures & Options forums, part of the Markets category; I'm reading a book on options trading (Ansbacher - The New Options Market) and I came across this: "Amazon.com announced ...

Reply
 
LinkBack Thread Tools Search this Thread
Old Jul 7, 2009, 4:42pm   #1
 
4 Posts
Joined Mar 2009
Stock Splits

I'm reading a book on options trading (Ansbacher - The New Options Market) and I came across this:

"Amazon.com announced that it was splitting its stock three for one. To a public that believed a stock split was a sure sign of future success, this was like pouring gasoline on a roaring fire. And to top it off, there were a lot of doubting Thomases who had thought that the stock was widely overvalued and had built up significant short positions. As the stock rose, these poor souls were forced to buy in their positions, further accelerating Amazon.com's dramatic ascent. But wait a minute. Did we forget the three-for-one split effective January 5th? Sure the price of the stock on January 15th was 140, but because of the split it was worth three times that amount, or 420."

Don't stock splits increase the number of shares outstanding, and in order for market-cap to remain the same, the stock price should fall proportionately? How does it rise to 420 in this case? Also, I looked up AMZN charts on Yahoo! Finance, and have not seen it anywhere NEAR 420, looking back 10 years. Can anyone shed some light on what the author is implying?

Many thanks.
dxb_trader_09 is offline   Reply With Quote
Old Jul 7, 2009, 4:43pm   #2
 
4 Posts
Joined Mar 2009
dxb_trader_09 started this thread There's also a figure

Click the image to open in full size.
dxb_trader_09 is offline   Reply With Quote
Old Jul 7, 2009, 4:48pm   #3
 
A Dashing Blade's Avatar
Joined Jul 2004
You are absolutely correct, he is a ****, how the hell that got past the editing process . . .

Technically, the situation he's refering to (if it happened) is known as a "consolidation"

I do see a similarly shaped graph but not at those price levals, this may be because of subsequent stock splits (& therefore chart rebasing)

Last edited by A Dashing Blade; Jul 7, 2009 at 4:54pm.
A Dashing Blade is offline   Reply With Quote
Old Jul 7, 2009, 4:51pm   #4
 
4 Posts
Joined Mar 2009
dxb_trader_09 started this thread Cheers man. I'm a newbie at this and so I was banging myself over the head wondering why I couldn't grasp this. The guy's supposed to be reputed bloke though ...
dxb_trader_09 is offline   Reply With Quote
Old Jul 7, 2009, 4:53pm   #5
 
4 Posts
Joined Mar 2009
dxb_trader_09 started this thread It COULD have been a hypothetical example, but NOWHERE does the author state that, and the entire time I assumed it was all fact...
dxb_trader_09 is offline   Reply With Quote
Old Jul 23, 2009, 5:33pm   #6
Joined Jul 2009
Quote:
Originally Posted by dxb_trader_09 View Post
I'm reading a book on options trading (Ansbacher - The New Options Market) and I came across this:

"Amazon.com announced that it was splitting its stock three for one. To a public that believed a stock split was a sure sign of future success, this was like pouring gasoline on a roaring fire. And to top it off, there were a lot of doubting Thomases who had thought that the stock was widely overvalued and had built up significant short positions. As the stock rose, these poor souls were forced to buy in their positions, further accelerating Amazon.com's dramatic ascent. But wait a minute. Did we forget the three-for-one split effective January 5th? Sure the price of the stock on January 15th was 140, but because of the split it was worth three times that amount, or 420."

Don't stock splits increase the number of shares outstanding, and in order for market-cap to remain the same, the stock price should fall proportionately? How does it rise to 420 in this case? Also, I looked up AMZN charts on Yahoo! Finance, and have not seen it anywhere NEAR 420, looking back 10 years. Can anyone shed some light on what the author is implying?

Many thanks.
The author just adjusted the price for the split,no big deal.
He simply multiplied the post-split price by 3 if it was a three to one split.
Garbanzo is offline   Reply With Quote
Reply

Thread Tools Search this Thread
Search this Thread:

Advanced Search

Similar Threads
Thread Thread Starter Forum Replies Last Post
Splits.... mauzj Trading Firms 15 Nov 18, 2008 2:26pm
trivial stock splits bludmonkey First Steps 0 Aug 7, 2006 5:27am
why so slow on the portfolio with company splits happyhappyhappy General Trading Chat 0 May 12, 2006 10:51am
Uk Share Splits jonjames Stocks 0 Apr 27, 2006 8:48am
stock splits pkfryer Educational Resources 1 Jun 20, 2004 9:06am

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)