The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question – “Why do stocks reverse split?” Unlike a regular stock split where you see the share price of the company go down as the company issues more outstanding shares, usually in say a two for one or a three or a five for one stock split, in a reverse stock split, the stock share price goes the opposite direction and actually goes up. And so, what happens is that the company actually takes outstanding shares out from the float or the market open interest of those shares and actually exchanges say two shares in exchange for one share. And so, they actually try to remove outstanding shares in the open market and therefore, push the per share price of the company higher. The real question is again, “Why would companies do a reverse stock split?” Well, first of all, if the company is in a downward spiral of stock price, there is a risk that the potential of the company could be delisted