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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.

EMLX (Emulex Corp--$179.91; +24.60; optionable): Splits 2:1 effective 12-18.
Company Profile
STATUS: What a run we have seen, as the stock blasted to a new high Friday. In the carnage after hours EMLX was trading back down in the 171 range, its prior closing high. With the changing news Saturday, we will look for the stock to hold there for a continuation of its run if the market gets more news it likes. Friday’s move gapped over its up trendline (at 160), which had been solid support before the stock’s November drop.
BUY POINT: From here, looking for a continued move up. If we get a bit of a retreat, look for the stock to hold support at 171, and catch a move back up.
POSITION: From here—Stock and/or January $175 calls to buy (UMQ AO). Pullback—Stock and/or January $165 calls to buy (UMQ AM).

Chart by StockCharts.com