On July 30, 2020, Apple announced in its fiscal third-quarter earnings that the Board of Directors has approved a 4-for-1 stock split.
A 4-for-1 split means that three additional shares of stock are issued for each share in existence on the Record Date of August 24, 2020. Trading will begin on a split-adjusted basis on August 31, 2020.
Less than two weeks after Apple’s announcement, Tesla announced on August 11 that the Board of Directors has approved and declared a five-for-one split of Tesla’s common stock in the form of a stock dividend to make stock ownership more accessible to employees and investors.
Each stockholder of record on August 21, 2020 will receive a dividend of four additional shares of common stock for each then-held share, to be distributed after close of trading on August 28, 2020. Trading will also begin on a stock split-adjusted basis on August 31, 2020.
What is a stock split
A stock split is a corporate action in which a company increases the number of its outstanding shares by dividing the company's outstanding shares into a larger number of shares.
Splits are a change in the number of outstanding shares of a company’s stock without a change in shareholders' ownership percentage in the company. At the same time, the market capitalization (and the value of the company) does not change as well.
Reasons for stock splits
The primary reason why companies decide for a stock split is to increase the liquidity of the shares in stock the market.
As stated by Tesla, stock splits could make stock ownership more accessible to employees and investors, which will lead to the increase of liquidity.
Sometimes, stock splits may have a positive effect on stock prices because they allow more individual investors to buy a stock. However, in the long term, a company’s financial results and future prospects are the deciding factors of its stock price.
Holdings changes of Apple and Tesla’s stockholders
If you bought Apple or Tesla shares before the market opens on August 31, 2020, your account will automatically complete the stock splits before the market opens on August 31, 2020.
You do not need to make any actions, and Futu Inc will not charge any fees.
Stock Holdings (Shares)
Here’s an example:
Let’s assume that as of the Record Date (August 24, 2020) an investor owns 100 shares of Apple common stock and that the market price of Apple stock is $400 per share, so that the investment in Apple is worth $40,000.
Let’s also assume that Apple’s stock price doesn’t move up or down between the Record Date and the time the split actually takes place.
Immediately after the split, the investor would own 400 shares of Apple stock, but the market price would be $100 per share instead of $400 per share.
The investor’s total investment value in Apple would remain the same at $40,000 until the stock price moves up or down.
Holdings changes of Apple and Tesla’s option holders
If you bought options of Apple or Tesla stocks prior to the market opening on August 31, 2020, your option contracts will be subject to the following rules:
Here’s an example:
Let’s assume that as of the Record Date (August 21, 2020) an investor owns an AAPL call option AAPL200925C600000 with a strike price of $600.
After the stock splits, the investor will own four AAPL call options AAPL200925C150000 with the strike price adjusted to $150.
Will your trading be affected on stock splits day?
All investors should notice that Apple and Tesla will be prohibited to trade by Futu Inc during the process of stock splits. It is expected that the processing will be completed and the trading will be reopened before the market opening on August 31, 2020.
(Note: The final completion time may be delayed due to the effect of upper cooperation partners, please check the relevant announcement on the stock page for a real time notice).