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Technology Stocks : America On-Line: will it survive ...?
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To: LWolf who wrote (11566)10/27/1998 10:32:00 AM
From: Steve Robinett  Read Replies (1) of 13594
 
Laura,
<<5 pts on 1000 shares is $5000, and on 3000 shares it's $15000.>>

If that's what people like, people are a little silly. The issue's volatility (standard deviation of the issue's daily percentage gain or loss annualized--AOL's is currently about 60%) doesn't change just because you split the stock. That means a 5 pt move on a $100 stock (5%) is the same as a 2-1/2 pt move on a $50 stock and that you own twice as many shares just meants you earn the same amount of money you would with a 5 pt move on half as many of a $100 stock. To get the 5 pt move post split, the stock would have to move twice as much as pre-split.

Splitting a stock does lower the price and corporations like having a stock price in the, say, $50/shr range so that both individual investors and institutional investors can easily particiate in the issue.
Best,
--Steve
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