As for the value of splits, I'm convinced that they have a marginal, temporary psychological affect on a small minority of the least-informed investors. And after all, they are the people who move markets.
Apple increases the number of authorized shares available. I don't think they even have enough for a 3 for 2 split at this time if I am not mistaken. You will know when Apple will do a split when they go to shareholders and ask for an increase in the number of authorized shares available. The new shares will be either for a stock split or as an inducement to get SJ to stay
Apple increases the number of authorized shares available. I don't think they even have enough for a 3 for 2 split at this time if I am not mistaken. You will know when Apple will do a split when they go to shareholders and ask for an increase in the number of authorized shares available. The new shares will be either for a stock split or as an inducement to get SJ to stay
Neal
I looked up the number of authorized shares for Apple and the last I could find was that Apple is authorized for 1.8 billion shares. Presently, there are over 900 million shares outstanding. So as a correction for my previous post, there are enough shares for a 3 for 2 split but not for a 2 to 1 split of Apple stock.
'Done right' is a loaded term. You can do it 'right' but can the option exercised against you and lose any further upside (as you do point out). You can minimize that by selling a call higher exercise price, but that means lower premium (cash) up front.
If someone is really in the market for income, then they are better of investing in dividend-paying stocks or bonds, rather than a stock such as Apple.
I did a quick scan of one of my brokerage statements to see how much income I actually made this year on just writing covered calls on AAPL.
If my calculations are correct, I made about $14 per share on the call transactions for this calendar year. It may not sound like much, but at my position size that comes up to about 3 17" MBPs.
On a couple of occasions I got called out, and ended up re-entering the long AAPL position on a pullback. I also do not generally wait till the last minute to cover the short calls so I do leave something on the table, so as to take risk off after most of the move has been made. eg. If the trade is worth 2, I don't mind giving up, say .15 if I can get out early and avoid the risk of some crazy move in the underlying because of some unexpected news event.
There is a caveat to writing calls. This works great on a nontaxable account (like an IRA) since you can get in and out of stocks without having to worry about capital gains taxes or the wash rule. If you have your stock in a taxable account, you may not want to run the risk of being called out and having to pay capital gains, which if you have held for a long time at a low basis price can be pretty substantial.
Anyway, the reason I brought up covered calls is that the original poster had a long term block of AAPL stock that he has a substantial amount of money tied up that generates no income (since AAPL does not pay a dividend) and was getting flack from his wife about it. This way you get to have your cake and eat it too.
I have used this strategy with dividend paying stocks as well, most recently with VZ (verizon), HD (Home Depot), QCOM (Qualcom), WMT (Walmart), and KO (Coca Cola).
If I am going to tie up capital, why not get paid a little for my trouble? Plus this does act as something of a hedge by providing (albeit limited) downside protection.
I should mention that there are times with this is an appropriate strategy (depending on the implied volatility, which in turn affects the option price), and there are times when the risk/reward ratio dictates that you not enter the trade. Timing is important here as the value of the options decay as it approaches expiry.
Unless you drive your car to a strip club. Double value for your analogy dollar.
On the topic, I saw several references to reverse splits but I didn't see any explanation for why they are done typically, and it's not just a mathematical exercise. Companies do reverse splits when their share value falls low enough that they no longer meet the listing requirements of the stock exchange (which I think is $5.00 on the NASDAQ). Rather than find themselves being relegated to the Pink Sheets, they reverse split the shares.
As for the value of splits, I'm convinced that they have a marginal, temporary psychological affect on a small minority of the least-informed investors. And after all, they are the people who move markets.
I don't think it is the listing requirement. A sub $5 stock can still be listed under Nasdaq. I think the reason is that many institutional investors are obliged to divest themselves of the stock when it goes below $5.
I don't think it is the listing requirement. A sub $5 stock can still be listed under Nasdaq. I think the reason is that many institutional investors are obliged to divest themselves of the stock when it goes below $5.
But I may be wrong on this
I believe the limit is $1, and in my experience it's the only reason companies do reverse splits.
The price per stock is arbitrary, so a stock split is as meaningless as the fact that it "broke $300" for the first time in the company's history. Apple could have done a 1-to-100 reverse split ten years ago and had a stock price in the stratosphere. Who cares?
The interesting thing is their total valuation continues to climb and is STILL seen as undervalued by most analysts.
Yes, it's true the valuation remains the same, but it does have a psychological effect. There are many investors that would never buy a stock over $100.00 let alone $300.00. So.....if it splits say 6:1 and the shares are now $50.00 that will open up a whole new batch of investors that just couldn't buy at 300.00 but would at 50.00 only due to psychological reasons. $300.00 is a big money number. Yes, it's stupid because they could buy 10 at $300.00 or 60 at $50.00 and have the same amount but they just don't think that way. They want to see more shares in their file. 60 as oppose to 10 is more comforting to them. I've told lots of my friends about the rise of apple, but they would never buy in at this going rate but if it split they would. Dumb, I know, but that's the way alot of smaller investors think. Splitting it would bring in a whole lot more people who would never buy at this current price.
Comments
As for the value of splits, I'm convinced that they have a marginal, temporary psychological affect on a small minority of the least-informed investors. And after all, they are the people who move markets.
That says it all
Neal
Apple increases the number of authorized shares available. I don't think they even have enough for a 3 for 2 split at this time if I am not mistaken. You will know when Apple will do a split when they go to shareholders and ask for an increase in the number of authorized shares available. The new shares will be either for a stock split or as an inducement to get SJ to stay
Neal
I looked up the number of authorized shares for Apple and the last I could find was that Apple is authorized for 1.8 billion shares. Presently, there are over 900 million shares outstanding. So as a correction for my previous post, there are enough shares for a 3 for 2 split but not for a 2 to 1 split of Apple stock.
Neal
'Done right' is a loaded term. You can do it 'right' but can the option exercised against you and lose any further upside (as you do point out). You can minimize that by selling a call higher exercise price, but that means lower premium (cash) up front.
If someone is really in the market for income, then they are better of investing in dividend-paying stocks or bonds, rather than a stock such as Apple.
I did a quick scan of one of my brokerage statements to see how much income I actually made this year on just writing covered calls on AAPL.
If my calculations are correct, I made about $14 per share on the call transactions for this calendar year. It may not sound like much, but at my position size that comes up to about 3 17" MBPs.
On a couple of occasions I got called out, and ended up re-entering the long AAPL position on a pullback. I also do not generally wait till the last minute to cover the short calls so I do leave something on the table, so as to take risk off after most of the move has been made. eg. If the trade is worth 2, I don't mind giving up, say .15 if I can get out early and avoid the risk of some crazy move in the underlying because of some unexpected news event.
There is a caveat to writing calls. This works great on a nontaxable account (like an IRA) since you can get in and out of stocks without having to worry about capital gains taxes or the wash rule. If you have your stock in a taxable account, you may not want to run the risk of being called out and having to pay capital gains, which if you have held for a long time at a low basis price can be pretty substantial.
Anyway, the reason I brought up covered calls is that the original poster had a long term block of AAPL stock that he has a substantial amount of money tied up that generates no income (since AAPL does not pay a dividend) and was getting flack from his wife about it. This way you get to have your cake and eat it too.
I have used this strategy with dividend paying stocks as well, most recently with VZ (verizon), HD (Home Depot), QCOM (Qualcom), WMT (Walmart), and KO (Coca Cola).
If I am going to tie up capital, why not get paid a little for my trouble? Plus this does act as something of a hedge by providing (albeit limited) downside protection.
I should mention that there are times with this is an appropriate strategy (depending on the implied volatility, which in turn affects the option price), and there are times when the risk/reward ratio dictates that you not enter the trade. Timing is important here as the value of the options decay as it approaches expiry.
Unless you drive your car to a strip club. Double value for your analogy dollar.
On the topic, I saw several references to reverse splits but I didn't see any explanation for why they are done typically, and it's not just a mathematical exercise. Companies do reverse splits when their share value falls low enough that they no longer meet the listing requirements of the stock exchange (which I think is $5.00 on the NASDAQ). Rather than find themselves being relegated to the Pink Sheets, they reverse split the shares.
As for the value of splits, I'm convinced that they have a marginal, temporary psychological affect on a small minority of the least-informed investors. And after all, they are the people who move markets.
I don't think it is the listing requirement. A sub $5 stock can still be listed under Nasdaq. I think the reason is that many institutional investors are obliged to divest themselves of the stock when it goes below $5.
But I may be wrong on this
I don't think it is the listing requirement. A sub $5 stock can still be listed under Nasdaq. I think the reason is that many institutional investors are obliged to divest themselves of the stock when it goes below $5.
But I may be wrong on this
I believe the limit is $1, and in my experience it's the only reason companies do reverse splits.
The price per stock is arbitrary, so a stock split is as meaningless as the fact that it "broke $300" for the first time in the company's history. Apple could have done a 1-to-100 reverse split ten years ago and had a stock price in the stratosphere. Who cares?
The interesting thing is their total valuation continues to climb and is STILL seen as undervalued by most analysts.
Yes, it's true the valuation remains the same, but it does have a psychological effect. There are many investors that would never buy a stock over $100.00 let alone $300.00. So.....if it splits say 6:1 and the shares are now $50.00 that will open up a whole new batch of investors that just couldn't buy at 300.00 but would at 50.00 only due to psychological reasons. $300.00 is a big money number. Yes, it's stupid because they could buy 10 at $300.00 or 60 at $50.00 and have the same amount but they just don't think that way. They want to see more shares in their file. 60 as oppose to 10 is more comforting to them. I've told lots of my friends about the rise of apple, but they would never buy in at this going rate but if it split they would. Dumb, I know, but that's the way alot of smaller investors think. Splitting it would bring in a whole lot more people who would never buy at this current price.
I believe the limit is $1, and in my experience it's the only reason companies do reverse splits.
Yes, you're right -- it's $1.00. More about reverse splits and maintaining listing compliance on the NASDAQ:
http://www.nasdaq.com/about/FAQsContinued.stm