I want to talk about one of my most favorite things in the world that happens in the stock market. Stock splits. I am always excited when I hear one of my favorite stocks is splitting, and I want to teach you the math and how to create a vision for the future of where you want to go, and what a stock split can mean for you and your portfolio.
Let me set the scene. Let's say you start with 300 shares of Tesla. Today, you're saying, I don't want to sell calls against my Tesla because if I sell one option, that's 100 shares that might get called away. I don't want to cap my upside. I understand that. It makes total sense.
Maybe you have 200 shares. You're building your bags. If you sell a call and it gets called away, you lose 100 shares. That's half your position gone. Or maybe you only have four LEAPS. Four of the December 2028 $200 calls. You know if you sell calls against them, you have to give up one. So you sit on your hands. You wait.
But here's where it gets exciting. In the near future, Tesla is going to have an explosive move. It's going to catch a bid. And when it does, a stock split is coming.
I want to show you what that math looks like for your portfolio...
The Math Behind a 4-for-1 Split
Let me keep this simple. Stock is trading at $800. You own 300 shares. A 4-for-1 stock split happens.
- The new stock price: $800 divided by 4 = $200.
- Your new share count: 300 multiplied by 4 = 1,200 shares.
Now let's talk about what happens to your options. You had 4 of the December 2028 $200 calls. After a 4-for-1 split, you now own 16 contracts. And the strike price gets adjusted too. $200 divided by 4 = $50 calls. You now have 16 of the December 2028 $50 calls.
Why This Changes Everything for Selling Covered Calls
Back when you had 300 shares, selling one call meant risking one third of your entire position getting called away. That felt terrible. With 200 shares, selling one call risked half your shares. Even worse.
But now you have 1,200 shares. If you sell one call and 100 shares get called away, you still have 1,100 shares. That's nothing. You barely notice it.
Would you be willing to sell one call against 16 LEAPS? I bet you would.
This math scales. If you started with 200 shares, after the 4-for-1 you have 800. Would you sell one call against 800 shares? Absolutely. If you had two LEAPS, now you have eight. The flexibility completely changes.
This Is Coming for a Lot of Our Stocks
You might only have two or three or five LEAPS on some of these high fliers right now. When we get a 5-for-1 split, those five LEAPS become 25 contracts if itβs a 5:1 stock split. . 2000 shares instead of 400 hundred. The potential to sell calls against them and generating income in ways you simply cannot do today.
Don't be discouraged if you're sitting there with a small position thinking you can't sell calls yet. This is coming for you. The split will give you the lot sizes and the flexibility to implement these strategies.
What Should You Be Doing Now?
You should be honing your skills. Practice selling covered calls in your paper trading account. Master IADSS +2 mean reversion setups and learn what that looks like to you. Study when to cover, when to roll diagonally, and when to repair if necessary. I cover selling calls in detail in Course 202, and if you watched MM13 where I showed the ALAB example, that's the kind of precision entry I'm talking about.
Just because you cannot implement this strategy today doesn't mean you shouldn't learn it for tomorrow. It is powerful. Selling calls is so lucrative, and you will get there. Take this time and this opportunity to learn how to do it.
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