CEO Adam Aron recently announced that there could be a possible reverse stock split in the near term future. This news had the investors known as the apes unsure and downright mad in some cases. This was all until some of the investor community uncovered this.
Does a stock’s float shrink during a reverse stock split
During a reverse stock split, the number of outstanding shares of a company’s stock is reduced while the price per share is proportionally increased. This results in a decrease in the stock’s float, which is the number of shares that are available for trading on the market.
For example, if a company undergoes a 1-for-2 reverse stock split, the number of outstanding shares will be halved, while the price per share will double. If the company had 10 million shares outstanding before the reverse stock split, it would have 5 million shares outstanding after the split, and the price per share would be twice as high as it was before the split. This means that the stock’s float would be reduced by half, to 5 million shares.
Reverse stock splits are typically implemented by companies that have seen their stock price decline significantly, in an effort to increase the price per share and make the stock more attractive to investors. However, reverse stock splits can also have negative consequences, such as reducing the liquidity of the stock and potentially diluting the value of existing shares. It’s important for investors to carefully consider the potential impacts of a reverse stock split before making any investment decisions.
ARE LOWER FLOAT STOCKS PRONE TO SHORT SQUEEZES?
Low float stocks are stocks that have a small number of shares available for trading on the market, which can make them more prone to price volatility and potentially more susceptible to short squeezes.
A short squeeze occurs when the price of a stock rises sharply, forcing traders who have sold the stock “short” to buy it back in order to cover their positions and minimize their losses. This buying pressure can cause the stock’s price to rise even further, leading to a self-reinforcing cycle that can drive the price of the stock up significantly in a short period of time.
Low float stocks are often more susceptible to short squeezes because they have fewer shares available for trading, which can make it more difficult for traders to cover their short positions and can lead to a larger price increase as they scramble to do so. In addition, low float stocks may be more heavily influenced by the actions of a few large investors, which can also contribute to price volatility and the potential for a short squeeze.
It’s important to note that short squeezes can occur in stocks with any float size, and are not limited to low float stocks. However, low float stocks may be more prone to short squeezes due to the limited number of shares available for trading and the potential for greater price volatility.
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