Tesla stock splits on Friday. What do you want to know.

Text size

Sean Gallup/Getty Images



You’re here

the stock is split after closing on Friday. It could mean another wild week Trade.

Tesla (symbol: TSLA) registered shareholders on August 21 will receive a dividend of four additional common shares, which will be distributed after the close of trading on August 28. This is equivalent to a 5-to-1 stock split.

The record date matters, but there is no arbitrage for investors to exploit. When someone sells Tesla stock after August 21 and before August 28, they are also selling the stock dividend. Everything happens through the pipes of the exchange and reconciliation system.

Shares are up almost 50% since the split ad on August 11, it is true, more than 50%. To research on stock splits often shows that stocks can have a bump around a split announcement, but the recent surge is still significant.

This makes predicting what happens this week anyone’s guess. Investors may want to get in on the action before the split becomes effective, thinking investors will buy cheaper Tesla shares on August 31, when the shares will begin trading on a price-adjusted basis. split. On the other hand, it is difficult to justify a 50% increase in value simply because the absolute value of a stock’s price is lower.

Perhaps all the good news is already reflected in the stock price and stocks will fall after the split takes effect. And remember that many brokers already offer fractional shares: Investors can own a piece of Tesla for as little as $5.

Although fractional ownership of shares is already a thing, a split can have a fundamental impact: options trading. A call option from Tesla in September with a strike price of $2,080, for example, cost around $180 to buy on Friday. An options contract is for 100 shares, so it costs $18,000 to buy one contract. The option price will fall when the absolute price of the stock falls.

It will become cheaper, in absolute terms, to trade Tesla stock options. But that’s hardly a reason why stocks should rise or fall on a split announcement.

Tesla shares are now up about 400% year-to-date and more than 800% over the past year, crushing comparable returns in the


Dow Jones Industrial Average

and


S&P500

as well as automotive peers. It fell 1.7% on Monday, but rose 0.5% on Tuesday. Tesla stock is trading up 1.1% at $2,045.26 in premarket trading on Wednesday.

It has been a amazing race, which is almost impossible to predict. Calling stock this week won’t be any easier.

Write to Al Root at [email protected]

About Catriona

Check Also

Alliant Credit Union Personal Loan Review

Main advantages Personal loans Alliant Credit Union personal loans are available to established members, meaning …