Amazon (NASDAQ: AMZN) shares rose right after the markets opened on Monday, June 6, as the lower price piqued the interest of retail investors. Shares were trading up 4% at one moment, to finish the trading day 1.99% in the green.
A stock split doesn’t change a given company’s fundamentals, nor does it improve the business environment for the firm; yet, stock splits have shown price appreciation in large tech companies which split their stocks.
Meanwhile, with the shares split come the options splits as well; hence options trading in yesterday’s session was dominated by Amazon.
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AMZN chart analysis
Presently, shares of Amazon are trending up, gaining 1.99% in the last trading session and over 14.71% over the previous month. Shares are now trading above the 20-day Simple Moving Average, showing signs of a possible break-out.
Post split performance
As the stock split affects the options trading, CNBC’s Options Action hosted the President of Optimize Advisors, Michael Khouw, who explained the options activity seen post-AMZN split.
“When the stock splits, so must the options. So when we’re taking a look at the options, the first thing we need to do is to adjust the strike prices of options. So in a 20-for-1 split, you take the strike, and you would divide it by that 20. So the $2,600 strike last week, becomes the $130 strike this week. Of course, we’ve increased the number of shares, and options will follow suit.”
Furthermore, as Khouw explained, it would be expected that the number of contracts that are going to be traded would increase since owning one contract prior to the split would give a holder a total of 20 contracts. This doesn’t mean that these 20 contracts are more valuable than the one that was owned prior to the split.
“We are going to expect the contract quantity, that trades on any given day, to increase. But this doesn’t necessarily mean that it’s actually trading more in terms of premium or notional value. And indeed, that’s what we saw today. We traded over 2.6 million contracts in Amazon. So in contracts terms at least, that made it the busiest single stock option.”
Predictions made about a possible increase in retail interest of AMZN shares post-split occurred on the first day the shares started trading after splitting 20-for-1.
Often times shares of companies that have undergone a split can outperform the S&P 500 index; however, that is never a given. The global macroeconomic environment and the company’s performance should still play a major role in determining the performance.
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