11:35am (EST) American International Group’s (AIG, $1.09, down $0.24) shareholders have approved a reverse stock split that could help the company keep its listing on the NYSE. The company proposed a one-for-20 reverse stock split last week with the SEC (Securities and Exchange Commission) and it just became official. The company also wants to bump the number of shares of its common stock from 5 billion to just over 9 billion and the preferred stock from 6 million to 100 million. Can you say dilution? Not that it’s too hard to dilute a $1 stock but people will look at AIG when it’s at $20 and wonder what happened. So, if you bought 1,000 shares of AIG at $1, it looks like you are going to have 50 shares valued at $20. Stay far away from this dog. Speaking of stock splits, Green Mountain Coffee Roasters (GMCR, $58.54, down $0.02) recently completed a 3-for-2 stock split. This is normally a bullish event and there are ways to play these types of news events but you have to be careful. For example, in the “old” days, you could buy a call option on a stock that was splitting and the stock normally kept going up as did the option. Nowadays, it’s a little trickier. Green Mountain split its stock on June 9th and the price was adjusted from $93 to $62 to reflect the 3-for-2 split. Up until the split, the stock ran from $75 to $95 in just a month’s time. This is known as the “pre-announcement stage”. That was big money if you had bought a call option. What usually happens now after a split is what is known as an “announcement pullback”. On June 9th, the stock closed at $62.57. By June 23rd, the stock hit a low of $51.65. That was “big money” if you had bought a put option right after the announcement. Now we are seeing what is known as the “post split” rally. Since making the low of $51 last week, the stock has challenged $60 over the past few sessions. The key number we are watching is the $62.57 number because that would mean the stock is trying to resume its uptrend. A break above $60 could lead to the test of its 52-week high. Remember, most financial sites will quote $94 as the 52-week high but they do not factor the 3-for-2 split. So basically, if Green Mountain gets back above $62-$63 it is at new highs. I don’t like any trades for this week in Green Mountain because of the 3-day weekend coming up but lets put the July 60 calls (QGMGL, $2.00, down $0.05) and the August 65 calls (QGMHM, $2.90, unchanged) on our Watch List. You may be able to “day trade” these for this week by buying 10 or 20 contracts and looking for a 50 cent bump which would get you $500-$1,000 but don’t hold anything overnight. Rick Rouse Rick@MomentumOptionsTrading.com]]>