Reverse split arbitrage is a strategy where traders take advantage of price discrepancies caused by reverse stock splits. A reverse split is when a company reduces the number of its outstanding shares, which increases the price of each share. For example, a 10:1 reverse split means that for every 10 shares you own, you will receive 1 share at the price 10 times higher than the original price. The complication arises when you have fewer than 10 shares. In this case, the company can choose one of the many following options.

They could choose to keep the resulting fractions of a share. In the example above, you will end up with 0.1 share on your account. No gains and no major losses either.

To avoid dealing with fractional shares, the company may choose to give cash-in-lieu. You will just receive cash for the fractional part of your position as if it is sold at the new price. No gains, no significant losses.

In some scenarios the company can round up the fractional part to the whole share. If you had on 1 share before the 10:1 split, you still get the 1 share but priced 10 times higher at after the split! This is where you can enjoy a small but almost riskless gain.

Here's what we will do to make your life easier:

1. Do the heavy lifting and search for stocks undergoing reverse splits that are rounding up the fractional shares
2. Calculate the reverse split ratio to determine the new share price
3. Monitor the market for any abnormal price movements
4. Automate buying 1 share before the expected split and selling right after

Warning!

Keep in mind that reverse split arbitrage carries risks and requires careful analysis of market conditions. Companies can announce changes or cancel the split on the same day it is supposed to go in effect. So please understand that every stock split we announce could result in cash in Lieu or fractional shares.