“After hovering around the price all week, Apple closed at exactly $500 [on Friday],” Zachary M. Seward writes for Yahoo Finance’s Quartz. “As in, five hundred dollars and zero cents. Is that a coincidence or what? In all likelihood, the stock was pinned to $500 by options traders attempting to hedge their bets that Apple would rise or fall.”
“Options give you the right to buy or sell a stock at a certain amount, known as the strike price. For instance, an investor who holds a $500 call option for Apple expiring tomorrow—there are lots of these options—could buy the stock for $500 on the next trading day, Jan. 22. That investor would have wanted Apple to close above $500 today, so she could get the stock at a discount,” Seward writes. “Put options work the opposite way, permitting the investor to sell the stock at the strike price. So anyone holding a $500 put option for Apple that expires tomorrow—there are lots of those, as well—would have wanted the stock to close below $500 today.”
“But options traders aren’t reckless, so when they buy call options, betting that the stock will rise, they usually also sell shares of the stock itself, in case it actually falls. And vice-versa for put options. That’s known as a hedge,” Seward writes. “Trading in Apple stock picked up in the final hour today until finally settling at precisely $500. That’s probably because so many options traders were on both sides of the bet that Apple would end up above or below $500. This is called strike pinning, and it’s increasingly common as trading in stock options grows more popular.”
Read more in the full article here.
Coz the share market is heavily controlled by people who have piles of money .
Nobody has that kind of power. $8.5 billion worth of shares traded yesterday.
They do. It also implies AAPL is going up next week, starting Tuesday. The stock is no longer pinned. 500 has the max dollar value for options, all worthless now. Also, “implied volotility:, ie, the premium, is very low for March expiration. This implies the stock is going to go up then. Why? because the owners of actual shares are switching over from collecting premium to making money on the increased valuation of the option. Its a tell on the future price movement.
Unfortunately, fund managers DO have that kind of power – they own 68% of aapl’s stock. It’s a fairly trivial feat to manipulate the stock like this. They’re not looking at a billion dollars as a house or a boat or grandpa’s retirement, it’s a poker chip to be used to make (or lose) another poker chip.
You’re right. I read an article about this yesterday around noon. After the market closed I could not find the article.
How many “fund managers” do you suppose there are?
How many do there need to be? Do you have any idea how ridiculously huge hedge funds can be?
——RM
Nice Chrish1961.
Need any more evidence that the “game” is rigged?
It is time to do a 20 for 1 split and disrupt the options market which is vulturing too much of mom and granny’s money.
A split won’t make a damn bit of difference in this context.
Ah, yes: Wall Street — of the elite, by the elite, for the elite…
Maybe Apple should get into the stock market business….
After all, wouldn’t they be doing what they are good at, re-inventing existing technologies or markets? Look at what they did with music. Just saying.
Apple has an investment arm located in Nevada.
And a leg in Texas.
…and they left their Heart in San Francisco.
Because the fix was in, that’s why. Dude predicted this would happen all the way back on November 13th!
http://daringfireball.net/linked/2013/01/18/500
Why do you all get mad when capitalists manipulate capitalism?
Do you think that math really rules the markets?
Its way past time time to ban options. Its just legalised market rigging.
There is close to zero difference between option sellers and bookies. How much real difference is there between buying a “put” option on AAPL and betting on the 49ers to lose Sunday’s game?
Actually, the sports bet is more honorable. At least in that case the bettors can’t legally influence the outcome of the game.
——RM
“Actually, the sports bet is more honorable. At least in that case the bettors can’t legally influence the outcome of the game.”
Of course they do. The bettors actions affect the payouts. That’s the game…same as options trades.
Options serve a valuable purpose in financial markets by letting investors manage risk.
Heaven forbid there should be risk when you invest in stocks. Better manage it in a way that makes the stock price utterly predictable.
And if that “risk management” comes at the expense of everyone else’s investment, who cares, right? We’re just “dumb money” buy-and-hold schmucks who don’t understand how the market really works. Well, people are figuring out how the market really works, and that’s why they’re getting the hell out of stocks.
——RM
Once I’ve bet $50 on SF to win, there’s nothing I can do to make it more likely that I’ll win my bet. I can “hedge” by placing another bet on the Falcons, but that won’t affect the outcome of another person’s bet.
——RM
8^þ said, “Ah, yes: Wall Street — of the elite, by the elite, for the elite…”
God bless America! :/
The “American Dream” is a farce forced on the poor and the middle class to make them think that one day they can be rich just like them if they only work hard. BULLSHIT!
Hey, it keeps them working. As long as they can make payments that enrich the banks and Wall Street, they’re fulfilling their purpose. Want an education? We’ll indenture you for that. Want a way to get to your job? We have no effective public transit system, but we’ll indenture you for a car. Need a roof over your head? Two choices: rent and hope the landlord doesn’t raise it, or we’ll indenture you for a house you can pay on for the next 30 years. Any way you choose, everything you can earn for the rest of your life is going to make us richer. OBTW, don’t forget to put some money back for the undertaker, or we’ll indenture your kids for that.
I tried to turn the sarcasm off, but it keeps resetting itself.
And readers here wanted to elect Willard Romney for President?
The same Willard Romney who made his millions performing the same kind of financial chicanery we are decrying here today??
Here’s the depressing thing. The “American dream” used to mean simply owning your own house and a plot of land. Sometime in the 80’s, somebody decided that the new definition of the “American dream” was to get filthy rich. The original definition made more sense.
——RM
Where have the focus on fundamental gone?
You buy the stock of a company because its a great company and doing well. Today it seems for many and increasingly because of computer it’s more important where and when you buy than what you buy.
You buy the stock of a company because it’s a great company and doing well.
No. Not anymore. Thanks to options and derivatives, the value of a stock has become increasingly decoupled from the performance of the company.
This is why individual investors are fleeing the stock market like rats, even though we’re in a bull market (the first time both things have ever happened at the same time). Sadly, this is only going to make the problem worse, since with the loss of the individual investors, the ones who would buy and hold the stock, that increases the effect the “betting” investors have on the price.
——RM
Popular conspiracies theories aside, the article got it most right, except for simplicity he left out the market makers, who function like casino management: they want to make the bid/ask spread no matter where the market price goes. In order to stay “delta neutral” they have to enter the market constantly, trimming and expanding their holdings of the underlying stock, depending on option order flow. To ordinary investors, the cumulative effect of these normal interventions can appear highly counterintuitive, especially around expiration.
tl;dr Pinning to the strike price is a normal, predictable artifact of how options work.
We attach special meaning to numbers that end in zero. It’s exciting to watch the odometer in your car turn over to 10,000, but it is not exciting to see it turn over to 8,975. Neither number is more magical than the other. The stock ended at $500 because the stock ended up at $500, and the only reason it looks special because we use a base-10 numbering system. Big whoop.
You’re missing the point. The stock could’ve ended at whatever number in whatever base system. The reason why it ended Friday at this specific value is because it was the exact value of both the puts and the calls.
Your point only addresses why the puts and the calls equaled a round number like 500.
Apple is finished because the present apple management absolutely refuses to serve a big portion of the consumer market. They assist that this consumer group does not exist or irrelevant. So Samsung is eating it up with the Galaxy S3 and the Note. Why Apple cannot create a few more models with larger screens and built-in pens to satisfy different needs? It is because Apple management is more interested in being “Mr. Know It All” instead “serving” the market place. Great opportunity for Samsung to eat Apple and spit out the core!