Let's talk about the stock splits of Apple and Tesla. You see, on July 30th, Apple announced a four to one stock split. And on August 11th, just a few days later, Tesla announced a five to one stock split. So what does it mean? In this video, that's exactly what we're going to talk about. So you will learn what it means when a company announces a stock split. We'll talk about why do they do it?
We'll talk about what you need to do if you own shares of Apple or Tesla, and we'll talk about is a stock split good or bad? So will the price of a stock, in this case, Apple and Tesla, go up or down? So right now, should you be buying Apple or should you sell Apple? So let's talk about this right now. Look at this apple is on fire even today still up.
So, again, what is happening? First of all, let's talk about when the stock split is happening. When it comes to splitting a stock, we have a so-called split date and the split date is August 28th. This means after the market close on August 28th, shareholders are due the split shares after the close of business on this date. So what does it mean for Apple?
It means that you are getting four shares or three extra shares. So this means on August 31st and here's why, because August 28th is a Friday. So on August 31st if you have Apple right now, you will wake up and instead of having 100 shares of Apple, you will have 400 shares of Apple. And this sounds fantastic. Hey, wow! You just got an extra 300 shares of Apple. The same is true for Tesla. So Tesla has exactly the same split date. So on August 28th, at the end of business Tesla shares will be split five to one. So for every 100 shares that you have of Tesla, suddenly you will have 500 shares. Now, this sounds fantastic, right?
Oh, wait. There is a caveat because it also means that the price will be cut in one fourth. So right now, Apple is trading at what do we have here? $504. So this means at the end of business, after the close the price will be adjusted and we will use our handy dandy calculator here. So we'll take the $504 divide this by 4 and the price will then only be $126. So what does this mean for you? Well, it means that basically you have the same amount invested, right? Because think about it. If you have 100 shares that are worth $504 right now of Apple, so this means that you have $50,400 committed to the market. And if now after the split you have 400 shares times $126. Go figure, I did the math right. It is also exactly $50,400. So you see, for you, nothing will happen. It's not that suddenly you have four times as many shares and instead of $50,000 you have $200,000. No, not at all. So now the question is, why are companies doing this? So, again, we're talking about companies like Apple and Tesla. Both of these companies, they market themselves as very approachable companies and people's companies. You see, their mission is to get everybody an iPhone or in the case of Tesla everybody a Tesla. I mean, as you know, in the beginning, Teslas were horribly expensive. I mean, the Tesla that I bought, it was one of the first ones I think was $110,000-$120,000, something like this. Right now you can get a Model 3 for a very affordable price. Not quite sure, but isn't it around $30,000 or $40,000? Same with Apple iPhones.
Yes, of course, they make this horribly expensive iPhone 11 PROs that you, I think I paid $1,200 or $1,300 for it. But as you know, you can also get way cheaper iPhones. I believe what is it? The XS or so some other models here. And you see, in order to be congruent with their mission, they will make their shares more affordable because think about it, Tesla right now is trading at $2,000. So if you have a rather small account, you might not be able to afford Tesla. Same with Apple. I mean, Apple is a little bit cheaper here.
Apple is the more valuable company because, as you know, Apple is a two trillion-dollar company. The first two trillion-dollar company. Anyhow, the stock split will make the shares more affordable. And again, this is in line with Tesla's and Apple's values because they want to make sure that everybody can afford to invest into their company. Now, there's another reason for it, and we'll talk about it in just a moment. But let's talk about what does it mean when you're holding Apple or Tesla? Well, what exactly does a four to one stock split mean? We talked about it here in the case of Apple, if you owned 100 shares before, then you will own 400 shares after August 28th. So on August 31st you'll have this, however, the price will be only 1/4 of the shares. So the total amount invested does not change. Now for Tesla, the split date is August 28th. You're getting four extra shares for Tesla. So 100 shares become 500 shares and right now, we are trading at around $2,000 per one share. So this will actually be reduced by 1/5, so this means that one share will be only $400.
So there's two important things for you to do if you're trading Apple or Tesla. And the first one is double check your orders. So what do I mean by double check your orders? You see, some brokers will adjust your orders and here we're talking about a stop loss and a profit target. Some brokers might adjust your orders.
So if you have a stop loss order right now at, let's say, $440, it would now be a fourth of this, like $110. And if you wanted to sell 100 shares, the amount of shares would be adjusted to 400 shares. However, as you can see, there's a lot of stuff that needs to be adjusted so this is why many brokers are just canceling all orders so they don't become liable for adjusting anything. So you now have to place your orders at the new price and quantity. So double-check your orders because your broker might cancel your orders. And this applies to all active orders in the market. Again, some brokers might adjust it, many brokers will just cancel it. So make sure that you still have the orders in the market that you expect to be there. Now, the second thing is important especially if you're trading options.
So you got to check your option strike prices. And here's why. Also, the options strike prices will be cut in one fourth. So a strike price of 500 will become a strike price of 125. And you see, usually strike prices are trading in $2.50 or $5 increments and so you might see some weird strike prices. $123.75 or something like this, so just keep this in mind. Now, let's talk about it. Is a stock split good or bad? What will happen after a stock price? Will the stock price go up or down? Now, here's the deal.
Usually, usually stock prices go up after the announcement of a split, and here's why. Let's just think about it. See, this is when they announced the stock split and boom, see what happens here? Now, let's talk about Tesla. So Tesla here announced a stock split on August 11th. And you see, boom, it goes up. So why is this? So why are stocks usually going up after they're announcing a split? Well, the stock split announcement draws attention to the company's success. So this results in increased buying and therefore higher prices. You see, there's a tool called Google Trends and Google Trends, you see it here, shows actually how many people are searching for a stock like Apple stock split. And you will see that recently there's an increased interest in Apple. See this? After they announced it there's more interest in this. The same with Tesla. So TSLA stock, and especially if you are looking for TSLA stock split, you see that right now there's a lot of interest here. And this is why now people are becoming more interested in buying shares and therefore, there's higher prices. Now, also, what happens is that usually when they announce a stock split, they report high earnings and usually they raise dividends at the same time they announce a stock split. Think about it. I mean, Tesla announced here on July 22nd that they actually had their fourth profitable quarter and therefore now they are now eligible to be included in the S&P 500. Now, as you can see, this didn't really move the needle.
I mean, everybody said, "OK, we kind of knew this." But then when they announced the stock split, this is when they really took off. Same here with Apple. Apple did it actually at the same time that they announced that they had another record quarter. And you see, ever since it has been skyrocketing. So you see the synergy of these events can drive the price of the stock up even more.
Now, also, the third reason why it usually goes up is that the reduced price per share after companies split a stock attracts many smaller investors who before said, "You know what? I cannot afford Tesla at $2,000 or trading options on Tesla," because as you know, options are being traded in 100 packs, so this means that you would have to commit what? $200,000 in Tesla here. Anyhow, so with so many news and information services reporting stock splits and everybody's talking about it right now, I mean, you won't believe how many emails I received asking me, "So what is happening with the stock splits? What does it mean?" Right? So as you can see these announcements themselves have become a market-moving force because everybody's talking about it. Anyhow, so now you know what it means when a company announces a stock split, why they do it, and what it means for you. Now, if you enjoyed this video, please make sure to like it and if you would like to see more videos like this, then click on the subscribe button and also click the little bell, because this way you get notified whenever I release a new video. Also, if you enjoyed this video, please feel free to share this video if you have a friend who is asking you about a stock split and how this works. Please share this video with them or just stay tuned and watch any of the other videos that hopefully appear on the screen right now. Otherwise, probably YouTube tells you to watch more YouTube videos from me. Anyhow, hope this helps.
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