Option Pit Research Special Report: Nvidia Part 2/5

BY HANNAH SELNER

June 5, 2024

Dear Option Pit Research,

As we discussed on Monday, NVDA has a massive 10 for 1 stock split heading our way this Friday, June 7th after the close.

Just to quickly remind you… a 10 for 1 stock split means 100 shares trading at $1000 dollars will turn into 1000 shares trading at $100 dollars (aren’t you glad I saved this math for Wednesday and not Monday morning?).

There is no change in the cash held, but in general stock splits are considered bullish by the masses.

Today we’re going to talk about why that’s true and why it’s not.

Let’s start by talking about how stocks that are about to split trade. Generally speaking – and you can see this in Nvidia (NVDA) – stocks that are about to split rally into the split:

NVDA is up about 100 dollars since the announcement, and no, I am not counting the pre-earnings price, I am looking at how the stock has performed since gapping up on May 23rd.

Let’s go back and look at some similar stock split examples from 2022: Amazon, Google, and Tesla.

Let’s start with Amazon (AMZN):

Amazon showed a nice little 8-day, 20 point rally leading into its split; which in percentage terms is about the same as what we’ve seen in Nvidia: 19%.

Tesla (TSLA) did not fare as well, but still managed a rally:

Tesla’s announcement was August 5th, they hit a low on August 9th, but by the time the stock split, it traded as high as $314.67 after closing around $296 pre-split. Not a huge rally, but still up.

Google (GOOGL) is a different story entirely. Normally stock splits are announced a few weeks in advance, Googles was announced SIX MONTHS ahead of time. They issued the announcement during their February earnings, and then had a second earnings report in between the announcement and the split – so I sort of hate this example compared to the others because it’s not “normal” …

But…for the record, Google had a dramatic drop in the 6 months between their announcement and execution of the split, falling $40, or over 30%.

Yes, these all took place in 2002, but these companies’ size and industry are all similar to Nvidia.

Let’s take a look at one more, more recent split in Walmart. Walmart announced its split on January 30th, 2024 to be executed on Feb 26th.

Here’s a chart during that time:

As you can see, the stock went almost straight up during that time (well, “straight up” for Walmart – which is a classically “sleepy” stock) from $55.20 to $59.60. Another pre-split increase.

I want to look at one more major company that split in the recent past although this one goes back a little further: Apple.

The last time AAPL split was August of 2020. Now, obviously the market was in a VERY different place than it is right now, but it was certainly a bull market:

Leading into Apple’s split the stock had a really nice rally…. in fact as it headed into its split it was trading at a new all time high for the time.

Here’s one – Chipotle – that is currently waiting for a split. They announced back on March 21st, and they’re executing a 50 for 1 split on June 26th.

The stock closed $2,905 on March 21st, and as of today the stock is trading $3,076 and has topped out at $3,239.

Obviously the evidence I am laying out is pretty anecdotal. There is a TON of published research about how stocks perform POST splits. There is almost none on what happens to a stock between the announcement and the split date. This is something we will be taking the time to remedy over the next few months as we continue our publications in Option Pit Research.

So – where does this leave us? Given that we just walked through almost every big name – similar to Nvidia – that has issued and executed a stock split in the last few years… and the results are all pretty similar:

Bullish market overall
Stock gains value between the announcement of the split and the execution

…Our general outlook on Nvidia post-earnings is… it’s going to be a buy.

Exactly the position we plan to put on – and at what price – you’ll receive as a reader of Option Pit Research.

Stay tuned – talk soon.

P.S. Want to give a quick shout-out to my first public fan here at Option Pit: William aka “Bill.” He sent me an email about Option Pit University and started with this, so thank you Bill, I appreciate it. Hopefully much more to come –

P.P.S. As always, I love hearing your feedback; as positive as Bill’s, or not! Never hesitate to shoot me an email: [email protected]

Hannah Selner

Director of Product Development, Option Pit

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About the Author

Hannah Selner

Former CBOE floor trader and CIO at Karman Line Capital. Author of ‘The Option Traders Hedge Fund’ with over 30 years of options trading experience.