How to Buy Stocks Before They Split

One of the biggest reasons companies split their stock is because the shares have risen to a price that's deemed inaccessible to many investors. This price often is about $100. So to boost liquidity, companies announce stock splits. This action does not result in immediate gains for investors, because a 2-for-1 split turns 100 shares of ABC Inc. at $100 share into 200 shares at $50. But many investors like to be involved before the split.

Set Up Alerts

An easy for investors to find out about stocks before they split is to set up news alerts through their brokerage accounts or through a source such as Google News, Yahoo Finance or Daily Finance. Use the term "stock split" or some derivative thereof. Companies are required to tell investors the split date and the post-split ratio when announcing the split, to give them ample time to react to the news.

Do Some Homework

An easy way to find stock split candidates, even before a split is publicly announced, is to find companies that have histories of splitting their shares. Past split information is easy to find, and it's free on dedicated financial websites and online brokers. Some older large-cap companies have histories of splitting their stock when the price gets into the $80 to $100 area, because many retail investors view prices beyond that range as inaccessible.

Look for High-Priced Stocks

No one sector has a monopoly on triple-digit stocks, but looking for such names is a good way of finding potential stock split candidates before an official announcement is made. However, some companies do not simply split their shares every time the stock crosses $100. Apple rose to more than $700 in 2012 but never split its stock despite pressure to do so. Google traded at more than $800 and never split, either.

Use Options

Advanced traders can use the options market to get involved with stocks before they split. For example, an investor can sell puts on ABC Inc. after the company announces a stock split. If the investor sold the $50 puts and ABC splits at $49 around the time of options expiration, the investor will have ABC "put" to him.

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