SCHD - 3 for 1 STOCK SPLIT COMING! Time for the WHEEL STRATEGY! (MORE INCOME)
Summary
TLDRThe video discusses an upcoming stock split for Schwab's SCD ETF on October 24, 2024, with a 3:1 ratio. This move is part of Schwab's broader strategy to reduce the price of their ETFs to around $20-$25 per share, making them more affordable. The stock split is expected to increase liquidity, especially in the options market, and enhance the ETF's appeal for strategies like the wheel strategy. The split will lower transaction fees and make options trading more accessible to a wider audience. The video also highlights SCD's strong performance and potential for generating income through options trading.
Takeaways
- 📅 Schwab Asset Management is conducting stock splits, including a 3:1 split for SCD, on October 24th, 2024.
- 🔄 This is the first time Schwab has performed stock splits on their ETFs, aiming to standardize the average price around $20-$25 per share.
- 📈 Stock splits increase the number of shares available, enhancing liquidity and making it easier for investors to trade.
- 💡 The split is particularly beneficial for SCD's options market, which previously lacked liquidity.
- 💼 The wheel strategy, involving selling cash-secured put options and then selling call options, becomes more accessible post-split.
- 📉 A reverse stock split is mentioned as a tactic that might hide poor performance, contrasting with the forward split's positive implications.
- 💰 The stock split makes SCD more affordable, potentially attracting new investors and increasing the ETF's performance.
- 📊 SCD has shown strong performance, making it a good candidate for the wheel strategy which requires steady and consistent growth.
- 💬 The script discusses how to calculate premium income from options trading, emphasizing the strategy's potential for income generation.
- 📈 The stock split is timed well with SCD's recent strong performance, potentially adding further upward momentum.
- 💲 Post-split, the dividends per share will decrease, but the overall strategy for income generation through options like the wheel remains attractive.
Q & A
What is a stock split, and how does it work?
-A stock split divides existing shares of a company into multiple new shares, increasing the number of shares while keeping the overall market value of the company unchanged. For example, in a 3:1 stock split, an investor with 100 shares would now have 300 shares, but the total value remains the same.
Why is Schwab Asset Management performing stock splits on its ETFs, including SCD?
-Schwab Asset Management is performing stock splits to make its ETFs more affordable, targeting an average price of $20 to $25 per share. This also increases liquidity and accessibility for investors, allowing more people to trade shares and options on these ETFs.
How will SCD's 3:1 stock split impact investors?
-After the 3:1 stock split, investors will own three times the number of shares, but the total dollar value will remain the same. The price per share will decrease from around $83 to $27, making the ETF more affordable and increasing liquidity for both stock and option trading.
What are the benefits of a stock split for investors in SCD?
-The benefits of a stock split for SCD investors include increased liquidity, making it easier to trade shares and options. It also makes the ETF more affordable, potentially attracting new investors and allowing more people to use strategies like the wheel strategy in options trading.
How will the stock split affect the liquidity of SCD’s options market?
-The stock split will increase liquidity in SCD's options market, reducing the wide spreads between bid and ask prices. This will lower transaction fees and allow investors to implement more options strategies, such as the wheel strategy, with greater ease.
What is the wheel strategy, and why is SCD suitable for it?
-The wheel strategy involves selling cash-secured put options to collect premium income and then selling call options on the assigned shares. SCD is suitable for the strategy due to its consistent performance and steady chart patterns, which are ideal for options trading.
How does the stock split make options trading on SCD more accessible?
-After the stock split, options trading will become more accessible as the price per share will drop from $83 to $27. This means that investors will need only $2,700 to sell a put or call option instead of $8,300, making the strategy available to a wider group of investors.
Will the stock split affect SCD’s dividend payments?
-Yes, the stock split will reduce SCD’s dividends per share in proportion to the split. Currently, investors receive around $3 per share annually, but after the split, this will drop to about $1 per share. However, the overall dividend yield remains unchanged.
What is the potential psychological impact of the stock split on SCD’s performance?
-The psychological effect of the stock split is expected to boost SCD’s performance. The lower price per share may attract new investors, increasing liquidity and possibly driving the ETF’s price higher, especially as the ETF has been performing well in recent months.
What is the importance of the timing of this stock split for SCD?
-The timing of the stock split is strategic, as SCD has been gaining momentum and performing well in recent months. The split could add further upward momentum, improve liquidity in the options market, and make the ETF more attractive to investors during economic uncertainty.
Outlines
📊 Schwab's ETF Stock Split Announcement
SCD, a popular dividend ETF, is undergoing a 3:1 stock split on October 24th, 2024. This marks Schwab's first time performing stock splits on their ETFs, impacting nearly two-thirds of their portfolio. The move aims to bring ETF prices into the $20-$25 range. This stock split offers benefits, including enhanced liquidity and options market accessibility, which will be discussed in detail later. The creator also encourages viewers to engage with the content by liking the video for the YouTube algorithm.
📉 What Is a Stock Split and How Does It Work?
A forward stock split increases the number of shares but keeps the market value constant. For example, a 3:1 split would triple an investor’s share count, but the total value remains unchanged. In contrast, a reverse stock split reduces the number of shares, which the creator suggests may indicate poor ETF performance. YieldMax ETFs have done reverse stock splits, though that topic will be covered in another video. The current stock split for SCD comes at a crucial time as the ETF has seen a 7% increase since the creator’s last prediction.
🛠️ Stock Split Benefits for SCD Investors
A stock split increases liquidity and can make the ETF more attractive to investors. While SCD's liquidity for share trading isn't an issue due to its $60 billion AUM, its options market has been limited by wide spreads and poor liquidity. The 3:1 split will improve this, enabling more sophisticated options strategies like the wheel strategy. The wheel involves selling cash-secured put options to generate premium income and selling call options after acquiring shares. SCD’s steady performance and predictable chart patterns make it ideal for this strategy.
🚀 Enhanced Options Market Accessibility Post-Split
The 3:1 stock split will reduce SCD’s share price, making both shares and options more affordable. For example, instead of needing $8,300 to trade options, investors will only need $2,700 post-split. While premium income from options will decrease, the psychological impact will likely boost the ETF’s popularity. With the split, more investors can participate in options trading, and the wheel strategy becomes more accessible, allowing income generation from both puts and calls. The creator explains how to choose strike prices when using the wheel strategy.
📈 SCD's Performance and Options Strategy
SCD has been performing well, outperforming the S&P 500 alongside JEPI due to investor demand for income-producing assets during uncertain economic times. As interest rates decrease, dividend ETFs like SCD become more attractive. The stock split is expected to boost momentum further, while the fund’s dividends per share will decrease proportionally to the split. This decision, in conjunction with enhanced liquidity and easier implementation of strategies like the wheel, positions SCD for future growth. The video wraps up with a reminder to subscribe and like.
Mindmap
Keywords
💡Stock Split
💡Schwab Asset Management
💡ETF (Exchange-Traded Fund)
💡Liquidity
💡Options Market
💡Wheel Strategy
💡Premium Income
💡Affordability
💡Dividend
💡Strike Price
Highlights
Schwab asset management is performing stock splits on nearly 2/3 of all their ETFs, including SCD.
SCD will undergo a 3:1 stock split on October 24th, 2024.
Stock splits aim to make the average price of ETFs around $20 to $25 per share.
A stock split increases the total number of shares while keeping the overall market value the same.
SCD has been performing well, appreciating by almost 7% since early August.
Stock splits can enhance liquidity and make it easier for investors to trade shares.
The options market for SCD was previously illiquid, with wide spreads and high transaction fees.
The 3:1 stock split is expected to add liquidity to SCD's options market.
The wheel strategy can be effectively implemented post-split due to increased liquidity.
SCD's consistent performance makes it suitable for the wheel strategy.
FastB is a financial platform offering real-time data and free tools for market analysis.
After the stock split, SCD will be more affordable, attracting new investors.
The stock split will make options trading more accessible by reducing the capital required.
The wheel strategy can generate over 8% per year in returns by selling puts and calls.
SCD's performance has been strong, outperforming the S&P 500.
The stock split is strategically timed to add momentum to SCD during uncertain economic times.
Post-split, the dividends per share will decrease, aligning with the stock split ratio.
Transcripts
one of the most popular dividend ETFs
SCD will be undergoing a stock split on
October 24th 2024 this is the first time
that Schwab asset management is
performing stock splits on their ETFs
and it isn't just for SD they are doing
this for nearly 2/3 of all of their ETFs
this chart right here displays all the
ETFs undergoing stock splits and SD
specifically will be undergoing a 3:1
split right now it seems like Schwab
wants the average price of all of their
ETFs to be at around 20 to $25 a share
and in my opinion this decision comes at
a very strategic and important time so
there are some major benefits that
investors need to know about now I'll be
covering live examples of option
strategies so I highly suggest that you
guys stick around until the end if you
guys are enjoying this content and find
it helpful please do me a little favor
and hit that thumbs up button for the
YouTube algorithm it really helps out my
channel and I really appreciate it so
thank you guys so much let's move on to
begin for those that don't know a stock
split or more specifically a forward
stock split simply divides its existing
shares into multiple new shares
increasing the total number of shares
outstanding while keeping the overall
market value of the company the same so
for example if an investor has 100
shares of a certain ETF in a three for
one forward stock split they will now
have triple the amount of shares so 300
shares but the dollar value will remain
the same so there's no creation of
wealth of any sort I just want to make
that clear now now there's also a
reverse stock split where for every
three shares you now get one share and
in my opinion this is a sign that the
fund managers are trying to hide the
poor performance of the ETF and yield
Max ETFs have done these a lot but I
will talk about that in another video
now there are few major benefits to a
stock split but I specifically want to
focus on SCD and why this decision comes
at a very important time this ETF has
been doing extremely well in recent
months and I made a video at the
beginning of August highlighting five
reasons investors will buy this ETF
after fears of a recession and rapid
rate Cuts start taking over and since my
call the ETF has appreciated by almost
7% now a stock split increases the
number of shares available for trading
which can enhance liquidity and make it
easier for investors to buy and sell the
stock now for SD specifically liquidity
for buying and selling shares was never
an issue because it has over $60 billion
of assets under management and investors
are actively trading shares but the
biggest benefit for SD in my opinion
comes when you look at the options
Market you see SD's option Market never
really had much liquidity so investors
that wanted to buy or sell options would
have difficulty filling their orders the
spreads on these options are typically
very wide resulting in higher than
normal transaction fees but with their
three for one stock split not only will
this add more liquidity for buying and
selling options but most importantly it
will give investors the ability to
implement more option strategies on the
ETF which in my opinion gives it a
completely new Edge moving forward and I
am specifically referring to the wheel
strategy now I recently posted a video
on what the wheel strategy is and how it
works and why it is one of my favorite
option strategies for generating income
to give you a brief gist of what it is
this is where you simply sell cash
secured put options instead of buying
shares of an ETF and then you collect
premium income and then you simply wait
to see whether you will be assigned
shares of stock where you will then
start selling call options and collect
even more premium income and again I
explained this in detail in my wheel
strategy video so make sure you check it
out right here and I've also attached a
link in the description Down Below in my
opinion scg can be great for the wheel
strategy and this is because the ETF has
shown strong and consistent performance
over the years which is a very important
factor to consider when trading the
wheel you want assets with steady chart
patterns and strong growth and you want
to avoid assets that fluctuate too much
in price and have irregular chart
patterns scg's chart patterns look very
favorable for the strategy now let's
take a quick break to talk about today's
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free now back to the video so increased
liquidity in the options Market will
allow investors to easily buy and sell
put in call options without suffering
from heavy bid to ask spreads that would
result in high transaction fees now the
other major benefit is affordability for
both shares and options after their 3
to1 stock split investors will be able
to buy one share of the ETF for around
$20 as opposed to $80 like right now and
this makes the ETF more affordable and
also introduces an entirely new group of
investors this can not only add
liquidity but also improve the
performance of the ETF but affordability
is also reflected in the options market
and this one is extremely important as
we know every option contract represents
100 shares of stock so if you want to
sell a call option you must own 100
shares of stock and right now looking at
scg's current price it is at around
$83 which means that you have to have
invested
$8,300 worth of shares in order to sell
this call option but with the stock
split that will bring the price per
share of the ETF down to around
$27 which means that you will be able to
start selling call options having only
invested around
$2,700 this makes options trading a lot
more accessible to a completely new
audience of investors too and the same
goes for selling put options that are
cash secured right now you need over
$8,300 to sell a single put option but
after the stock split investors will
only need around
$2,700 to sell this put option now
remember the premium income you will
receive will decrease after the share
split so do keep that in mind
however in my opinion the psychological
effect will still boost the ETF so
altogether not only do you have an ETF
that provides a decent dividend on its
own but by using the wheel strategy you
can also generate premium income by
selling puts collect dividends when
assigned shares and continue earning
premium income by selling calls now for
investors who are familiar with the
wheel strategy I have been getting a lot
of questions on how to choose a desired
strike price when selling a put contract
now of course there's no one answer to
this this question and it all depends on
your income goals and targets but what I
like to do is use areas of support and
pivot Points to find my preferred strike
prices for example if you want to
collect let's say 8% in premium income
on an annual basis on a $100,000
portfolio you would need to average
around $8,000 a year in premium income
so that means that on a monthly basis
you need to try to collect around
$660 in premium income now SD doesn't
have much flexibility with option expiry
dates the best you can get is monthly
expiration dates and this is the
standard option expiration cycle which
is the third Friday of every month so
right now we are one week in so that is
why the expiration dates on these
contracts are a little abnormal but
either way if we run through an actual
example with a $100,000 portfolio you
would be able to sell around 12 put
contracts at a strike price of $82 and
the option premium you would receive on
a two-month expiring put option if we
consider the slight time variation you
could theoretically get around $85 a
contract as of the most recent Market
close you would be getting around $70
I'm adjusting slightly to account for
the week that has passed so if we do
that math you can theoretically make
around
$1,020 every two months or $510 a month
in premium income which translates to
over 6.1% a year in returns now remember
this is only one half of the process
because you will also collect a decent
amount of Premium income once you start
selling call options and the best part
about this strategy is that the call
options could provide more premium
income than the puts this is because
when you get assigned the strike price
of the call options have to be exactly
the same as the strike price of the put
options that you chose in the beginning
so when you put everything together you
have the potential of making over 8% per
year and again if you find this very
confusing I highly suggest to watch the
video on the wheel strategy and remember
depending on your income goals you you
can sell these put options closer to the
money collecting even more premium
income but the most important thing is
that you should want to own shares of
this ETF so you're going into trades
with the mindset that you want to own
$100,000 worth of SD now of course there
are risks with the wheel strategy but
given that SCD doesn't undergo insane
price fluctuation gives me a lot more
confidence
now circling back to SD this ETF has
been doing extremely well in recent
months I also mentioned jeppy and how
both of them have outperformed the S&P
500 and the reason for this is simply
because during uncertain Economic Times
investors will flock to the safety of
dividend assets as a source of income
also as the Federal Reserve starts
cutting interest rates the interest
income investors are getting on their
fixed income assets and from money
markets will fall accordingly causing
the yields on dividend ETFs to become
more attractive from an income
standpoint so in my opinion given that
SCD has been picking up some strong
momentum this stock split will add
further upward momentum to the ETF at a
great time now another thing that I
wanted to briefly touch on is the funds
dividends after the stock split the
dividends per share that you will be
receiving will decrease in line with the
split right now investors are getting
around $3 per share in dividends on an
annual basis but after October 24th it
will be cut down to around $1 per share
so in my opinion its overall decision on
stock splits comes at a very great time
because it can add even more upper
momentum Tod and also increase liquidity
in the options Market making strategies
like the wheel easier to implement and
that is all for this one if you haven't
yet make sure you subscribe to my
channel and hit the thumbs up button for
the YouTube algorithm thank you guys so
much for watching and I will see you in
my next one bye
[Music]
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