Stock Splits

Mar 5, 2009
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#1
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.
 

A Dashing Blade

Well-known member
Jul 9, 2004
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#3
You are absolutely correct, he is a twat, 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)
 
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Mar 5, 2009
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#4
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 ...
 
Mar 5, 2009
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#5
It COULD have been a hypothetical example, but NOWHERE does the author state that, and the entire time I assumed it was all fact...
 
Jul 23, 2009
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#6
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.