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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.

PKE PKE (Park Electrochemical--$62.75; +3.87; optionable): Splits 3:2 effective November 9.
Company Profile for PKE
STATUS: Got the bounce up after the pullback of the last few days, moving to a new closing high. The all-time high (set earlier this week) is at 63.50. We will look for this stock, which is showing excellent relative strength, money flow and buying, to continue up to a new high as we head toward the split.
PLAY: A move over 63.50. Stock only.

Chart by StockCharts.com

The stock market has not shown even the slightest inclination this week to let go of its unruly behavior. Just when it seemed that a rally might be taking shape, news of poor quarterly earnings came from Nortel Networks (ticker: NT), and down the market went again. Most notably, the fiber-optics sector, one of the most popular areas of the IPO market this year, plummeted.

(This IPO story is continued on our website in the IPO Forum.)