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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.

LUV (Southwest Airlines--$31.01; -0.69; optionable): Announced a 2:1 stock split, effective February 15.
STATUS: Fell back a bit out of its recent consolidation, but held up to close with a doji after testing below its 50 day MVA (30.74) at its Friday low of 30.55. Not a severe drop, and the doji over support could signal a move back up in the handle to its small (five-week) cup-with-handle pattern. LUV has made a nice little move up from the 28 range in the right side of the little cup, and we will see if it can bounce back up into the recent range and make a run toward its high of 34.99.
PLAY: Aggressive-A bounce up from here, with stock and/or March $27.50 calls to buy (LUV CY). Breakout-A move to 32.57, with stock and/or March $30 calls to buy (LUV CF).
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