SCHD - 3 for 1 STOCK SPLIT COMING! Time for the WHEEL STRATEGY! (MORE INCOME)

Summary

The 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

00:00

📊 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.

05:02

📉 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.

10:03

🛠️ 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.

Keywords

💡Stock Split

A stock split divides a company's existing shares into multiple new shares without changing its overall market value. In the video, SCD will undergo a 3:1 stock split, meaning investors will hold three times as many shares, but the total value remains unchanged. This split aims to increase liquidity and make shares more affordable.

💡Schwab Asset Management

Schwab Asset Management is the financial firm managing the SCD ETF and several other funds. The video highlights that this is the first time Schwab is performing stock splits on many of its ETFs, including SCD, to make their funds more accessible and improve liquidity.

💡ETF (Exchange-Traded Fund)

An ETF is a fund that holds a basket of securities like stocks, bonds, or commodities and is traded on an exchange. The video discusses SCD, a dividend ETF, and how its stock split and market performance impact investors. ETFs are often used by investors to diversify their portfolios.

💡Liquidity

Liquidity refers to how easily an asset can be bought or sold in the market without affecting its price. The video explains that the stock split will enhance liquidity in the options market for SCD, making it easier for investors to trade both shares and options at lower transaction costs.

💡Options Market

The options market allows investors to buy or sell options, which are contracts giving the right to buy or sell a security at a specified price. In the video, the SCD ETF had limited liquidity in its options market, but the stock split is expected to increase liquidity, benefiting strategies like the wheel strategy.

💡Wheel Strategy

The wheel strategy is an options trading strategy where investors sell put options to potentially buy shares and then sell call options to generate income. The video emphasizes that the stock split in SCD makes this strategy more accessible due to the lower price per share, enhancing its profitability for investors.

💡Premium Income

Premium income refers to the money an investor earns from selling options contracts. In the video, the speaker discusses generating premium income by selling put and call options on SCD, a strategy that becomes more feasible after the stock split. Premium income can complement dividend income from holding shares.

💡Affordability

Affordability refers to the ease with which investors can buy shares or trade options based on their price. The stock split of SCD is aimed at making the ETF more affordable, bringing its share price down to around $20, which opens it up to a broader range of investors and options traders.

💡Dividend

A dividend is a portion of a company's earnings paid to shareholders. The video mentions that SCD, a dividend ETF, offers steady dividends to investors. After the stock split, the dividend per share will be reduced in line with the split, but the total dividend payout relative to investment remains the same.

💡Strike Price

The strike price is the set price at which an option can be exercised. In the video, the speaker explains how investors can choose strike prices when using the wheel strategy on SCD. Selecting a suitable strike price is key to maximizing premium income and aligning with investment goals.

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]