We all know that tech giant Apple Inc. (Nasdaq: AAPL) did a seven-for-one (7:1) stock split on June 9, 2014, which took the price from about $645 a share down to $94 a share.
But what you may not know is that this move set up Apple stock for something really incredible. And I'm going to show you how to trade it.
It has to do with the stock split.
Pundits will tell you over and over again a stock split does nothing to the valuation of the amount of equity of AAPL stock in your portfolio. If you had $2,000 worth of stock before the split, you have $2,000 worth of stock after it splits (just more shares). Why all the hoopla?
The hoopla comes from past case studies of many a stock that has split only to regain its pre-split price within one to three years.
There is where the excitement lies: The very real possibility of doubling your money within 12 to 36 months.
Or in this case, the possibility of increasing it by seven times…
Stock Splits Can Create Opportunity
Just to illustrate, if you bought 500 shares of a stock at $50, your total amount of stock is worth $25,000. After a two-for-one (2:1) split, you now have 1,000 shares priced at $25, or the same $25,000 worth of stock.
For people who did not previously own the stock at $50, they may now see it at $25 as affordable and start acquiring a position. At least, that is what the company hopes. As they see it, more buyers of their stock is more demand, and that should create a higher share price.
In any case, if that stock goes back to $50, you now have 1,000 shares times $50, or $50,000 worth of stock. In essence, the investment in that stock has doubled!
And that brings me back to AAPL stock…
About the Author
Tom Gentile is widely known as America's #1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Now, he's diving into the biggest market in the world - one that almost no one has heard of before.