A reverse split consolidates shares (e.g., 20 old shares become 1 new share) to lift the price — typically to meet a $1 minimum bid requirement and avoid delisting. The market cap doesn't change at the moment of the split.
Nasdaq $1 bid mechanics
Nasdaq Listing Rule 5550(a)(2) requires a $1 minimum closing bid. Trade below it for 30 consecutive trading days and you get a deficiency notice. You then have 180 calendar days to cure — usually by closing at or above $1 for 10 consecutive sessions.
If you can't cure organically, you can request a second 180-day extension. The reverse split is the last lever before delisting.
Why the split itself doesn't fix anything
The authorized share count almost always stays the same. A company with 200M authorized and 50M outstanding goes from 25% utilization to 2.5% utilization after a 1-for-20. That's 195M new shares of dilution capacity, freshly unlocked.
Reverse splits are almost always followed by additional offerings within 6–12 months. That's not an opinion — it's the empirical pattern across the small-cap universe.
Post-split float dynamics
Volume in dollar terms tends to collapse after the split as retail loses interest in a 'real' $4 stock that was a $0.20 lotto ticket. Spreads widen. Volatility persists but with less liquidity.
Brokers also force-sell odd lots from the rounding, which adds a short-term selling pressure right at the split.
Trading the pattern
The standard play: short into the post-split bounce, cover before the next offering catalyst. The setup fails when a real fundamental catalyst (FDA approval, contract win) lands in the same window, so size accordingly.