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Price the stock was trading at when the split was announced.
Recent High on the stock.
Record Date and Pay Date for the split (and check these dates in reference to options expiration dates - 3rd Friday of each month)
View a chart of the stock and note support and resistance levels.
TIMETABLE
BUY the CALL when the Split is announced. (It is best to try to pick a Strike Price that is "just" in or out of the Money and to try to pick an Expiration Date nearest to the Record Date)
SELL that CALL BY the Record Date (sooner if price rises quickly and then "stalls"- don't want to lose "time" value). You can anticipate that the price will reach the most recent high (or possibly even hit new highs).
DON'T GET GREEDY - When you have a decent profit, take it.
BUY the PUT ON the Record Date. (With a Strike Price just out of the money based on current stock price and with an Expiration Date closest to the Pay Date for the Split).
SELL that Put about 3-5 days PRIOR to the Pay Date for the Split. You can anticipate that the stock price will pull back to near the price it was trading at when the split was announced.
DON'T GET GREEDY - When you have a decent profit, take it.
BUY the CALL 3-5 days prior to the Pay Date for the Split (Again watch Strike Prices and Expiration Dates as mentioned above). You can anticipate that the stock price will rise in that time period possibly back to the most recent High.
SELL that CALL either the DAY BEFORE the Pay Date or ON the Pay Date (Remember the Option will also split in the same ratio as the stock).
DON'T GET GREEDY - When you have a decent profit, take it.
There MUST be a record and pay date announced for the split.
I prefer to do this strategy with "short" time frame splits (ones where there is not a long time between the record and pay dates).
Disclaimer: There are NO GUARANTEES that this strategy will work. It is still up to you to set "stop limits" to protect yourself in case the market moves against you. It is up to you to keep an eye on market direction and momentum.
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