A reverse stock split is an important event that occurs when companies want to increase their share price which brings positive and negative results. As a trader, we can take advantage of this unique event to earn some income.
What is a Reverse Split?
A reverse split is when a company decreases the number of shares available in the market. This increases the price of the stock. It is the opposite of a stock split where a company’s shares are increased. If you owned 1,000 shares, in a stock split you now own 2,000 for a two for one stock split.
Reverse Stock Split
In a reverse stock split, there is a decrease in shares which could imply a high, short interest which could cause a short squeeze and bring the stock price up. You can trade this short interest for a breakout.
Reverse Stock Split Example
If a company you are invested in goes through a 1-to-5 reverse split and you own 1,000 shares, then you would own 200 shares of the stock. You divide 1,000 by 5 to get 200 and the price would go up five times making the market value of the stock unchanged.
If you are looking to figure out how to find a reverse stock to serve as a potential catalyst trade, join us for a free informational webinar to learn some trading techniques.