I’m so excited about Google’s stock split!
(Yes, I know… the stock split changes nothing. But stick with me for a moment…)
This week, Google’s parent company Alphabet Inc. (GOOG) announced a 20-for-1 stock split.
The stock soared on the news hitting an all-time high and finishing Wednesday’s trading session up more than $150 per share.
A lot of investors rolled their eyes at the stock’s reaction. Stock splits tend to get newbie investors excited when they really make no technical difference at all.
Splitting a stock is a lot like slicing a large pizza. If you slice a pizza 4 ways and take one slice — or slice a pizza 8 ways and get two slices — you’ll still have the exact same amount of pizza.
The same concept applies to Google’s stock split.
If you own one share before the split, you’ll soon be the proud owner of 20 shares. But those 20 shares still represent the same small piece of Google.
So it really makes no sense to get excited about Google’s stock split.
Especially now that most brokerages allow you to buy “fractional shares.”
Even before Google’s stock split, you could buy 1/20th of a share of Google on most platforms. Which is exactly the same as buying one share after the split.
But there’s one small detail with Google’s stock split that can make a big difference in how you grow and protect your wealth.
Google’s Stock Split Gives You “Options”
Pardon the pun, but Google’s stock split gives investors more options when it comes to trading or hedging this stock.
If you’ve been reading my alerts for a while, you know that I’m a big fan of option contracts.
Option contracts can be used in many different ways to help craft specific scenarios for investors.
- You can sell put contracts for income.
- You can buy call or put contracts to speculate on stock swings
- And you can combine options to enter spread trades that profit in different situations.
But there’s one big problem with shares of GOOG as they currently trade. The high stock price can make it exceptionally expensive for option traders.
Remember, every option contract represents 100 shares. So if you were to sell a GOOG $2,900 put for income, your broker would require to to set aside well over a quarter million dollars of buying power for your trade.
That’s way too much for most of us to allocate to a single income play.
But after Google’s 20-for-1 stock split shares will be trading near $150.
If you sell a $145 put contract for income, you’ll need to set aside $14,500 for each contract. That can still be a bit of a challenge for many portfolios, but the stock split definitely makes the stock a lot more accessible to option traders.
So while the split may not change Google’s fundamental value for investors, it can help create more opportunities for those of us who use option contracts to set up unique trades.