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Be sure to read our Stock Splits Manual. Playing stock splits can be very profitable, but it takes know-how.

Our stock split service focuses on three main types of plays:

1) pre-announcement (where we forecast an upcoming split prior to the company making the announcement); 2) pre-split (these plays are made in the days leading up to the actual split day); and 3) post-split plays (plays made after the actual stock split where the stock is showing continued or renewed strength).

We play pre-split plays as short-term plays. We get in when the technical indicators show us things look right, grab as much as we can, and get out, always being conscious of resistance and support. These stocks are highly volatile at this time, and can turn on you quickly. Don’t let good profits disappear. Watch for turns, especially when a stock trades in a wide range and finishes off its high. That is a sign these stocks often give you that they are running out of steam. We usually get out and ask questions later. We can always get back in. We like to play in the money calls, preferably two strike prices in the money as this usually gives us a greater delta (the percent an option will mover versus the stock’s movement). We prefer deltas of 75 or better. This means if the stock moves 1 point, the option should move three-fourths of that point. That means up or down.

Remember, wait to see the stock start to move up. Don't just blindly make a play and don’t try to guess tops and bottoms. We can look at indicators to give us a clue as to what will happen, but we need the stock to confirm it for us. Here's a pre-split play to watch and our current analysis.

AEOS (American Eagle Outfitter--$50.81; +3.18; optionable): Retail apparel. Splits 3:2 effective 2-26-01.
Company Profile
STATUS: Tried to make a break Friday from the handle of a 15-month cup base, hitting over the former high of the handle at its high of 51.50, but pulling back slightly to close. Volume was up but just above average at 1.3 million (average is 1.23 million). On a continued move, look for the stock to take out Friday’s high with more volume behind it. Relative strength has broken out, and the stock shows strong money flow and buying.
PLAY: A move over 51.50 on volume of 1.8 million, with stock and/or March (very low open interest) or May $45 calls to buy (AQU CI or AQU EI).

Chart by StockCharts.com