I'm traveling back in time, trying to remember if I was ever this green. Honest to god... I don't think I ever was.
I don't think you are grasping the concept here. All I'm asking about is the affect identical market conditions would have on price action following a 1-5 reverse split. Here it is for you to answer if you're so knowledgeable: If a gold ETF that tracks the price of gold via futures contracts or whatever was $50 when gold was $1000 then after a reverse split 1-5 when gold reaches $1000 again then what price will the gold ETF be?
The question doesn't make any sense. If the stock was $50, and it did a 1:5 reverse split... it's not a $10 stock. It's a $250 stock. If gold stays at or below $1000, the stock is not going above $250. I think I understand what you're trying to ask however. If there's a 1 to 1 correlation between your stock (pre-reverse split) and gold, then yes after a 1:5 reverse split, again.... assuming its a 100% pure-play (pre- split)and not some leveraged instrument that decays overtime... but a pure 1 to 1 pure-play and the shares outstanding aren't added to after the reverse split... yes it would move 5X the amount of gold post split.
Yes. 10,000 shares of ETF is now trading @ $4 1-5 reverse split (if today) ---> 2000 shares @ $20 ETF was $30 (pre-split) when gold was at its 52 week high. When gold returns to 52 week high, ETF will be $150 (2000 * $130 profit = $260,000) Compare this to if there was no 1-5 reverse split: (10,000 * $26 profit = $260,000) So the reverse split will not affect my potential profits. It's important because I want to know what kind of Lamborghini I can get.
Agreed...reverse splits readily get shorted right back down to the pre-split price. I think they are mostly done to jack retail who loaded up on shares at the bottom. It's like the opposite reason for a reverse split where it is done to help retail get in...and readily returns right back up to the pre-split price. Anyway those days are over it seems because of fractional shares.
Another way to look at this is like this... using the PE ratio. When a stock, any stock, does a reverse split, in theory its price/earnings ratio doesn't change. So say a stock has traded at a PE between 9 and 11 forever. Some actually do lol. Now lets say the company has 5M shares outstanding and it earns $2/share annually (or $10M).... it's a $20 stock. After the split There's 1M shares out and its a $100 stock. That $10M in profit, instead of being 2$/share in profit, it's now $10/share right? Again this is hypothetical... but lets now say the company has a new widget that will generate $250M to the earnings annually into perpetuity--- So $10.25 in earnings. At a PE of 10, the stock would trade at $102.50. Pre-split however, that $250M has to be divided by 5M shares outstanding... so $0.05/share. $2.05 X 10PE = a $20.50 trade price. And note, as I said, this example lives in a vacuum regarding other changes in the company's revenues, margins, growth rates etc. But hopefully you get the idea. Now if you are talking about a 3X ultra ticker that some trade and some (erroneously) think they can buy and hold..... all bets off. Totally different animal. The reason I throw that in is because these things do reverse splits all the time and I suspect that is what you're looking at. Like I said, a specific ticker would help immensely. Other than that, I didn't mean to offend you with my "green" remark.