Big Casino left out a crucial part...
In a 1:10 reverse split you get one new share for every 10 old shares...but...
Your one new share is worth 10 times as much as your old 10 shares.
So your stock value in $$$ doesn't change.
At that point it's all hunky Dory...
Sadly it also means that the average price you paid for your original shares is also now 10 times higher.
EG: If I had 100 shares at .10 cents and a 1:10 reverse split was instigated by the company I now have 10 shares worth $1.00 dollar.
My value stays the same but my average cost per share is also now $1.00.
Companies do this to supposedly increase share holder value, access financing buy displaying a higher stock price, or to gain access to a higher exchange in the stock market.
But in most cases people who prefer to profit from short selling, naked short selling, like hedge funds and some brokers, will now sell the stock short, (some long shareholders will also sell off), and the stock price falls once again. Sometimes to levels even with or even lower than the original .10 cent share price.
Shareholders get Farked. the company now has a lower number of shares and can authorize and possibly issue and maybe (sell) more shares to pad the bank account. it can be a vicious cycle.
I bought 2000 shares in a company at .30 and now I have 10 shares that have an average cost of $60.00. The company will never hit $60, and I`m not gonna average down my share price, even though the company now trades at .006.
The road is long, the pot holes are deep, and the wind blows in your face at hurricane strength.
yak
