Is Apple’s share price being manipulated?

“There’s something very fishy about the weekly options market,” Philip Elmer-DeWitt reports for Fortune. “Is it time to reel in the bad guys?”

MacDailyNews Take: Well, it would be nice if it was done sometime.

“It was 3:48 p.m. on Friday April 29 and traders who had purchased Apple (AAPL) April 29 $350 ‘calls’ — options that gave them the right to buy Apple shares in blocks of 100 for $350 per share — were sitting pretty,” P.E.D. explains. “The stock was trading around $353.50 and those calls were worth more $350 apiece (the difference between the price of the stock and the so-called “strike price” of the option times 100).”

“Then, in an extraordinary burst of trading — exacerbated by the rebalancing of the NASDAQ-100 scheduled for the following Monday — more than 15 million shares changed hands and the stock dropped below the $350 strike price just before the closing bell,” P.E.D. reports. “Result: The value of those calls disappeared like a puff of smoke.”

P.E.D. reports, “For people who follow Apple — investors and speculators alike — it was sickeningly familiar turn of events, one that has its own language and terms of art. The tendency for an underlying stock to close at or near an option’s strike price at expiration is called “pinning.” And the point at which a stock will close to the greatest detriment to anyone holding options at expiration is called max pain.”

“There’s a whole library of academic research documenting the max pain phenomenon. Perhaps the most famous is a 2005 study in the The Journal of Financial Economics that the New York Times reported on the following year. The authors, working at the University of Illinois, examined five and a half years of stock trades and found the pattern charted at right. The percentage of securities that closed within a few cents of the strike price of one of their options was too great to be attributed either to chance or to normal hedging activity. The shares, they concluded, had been manipulated,” P.E.D. reports. “For the record, manipulating a stock in this way is illegal.”

Much more, including some illuminating charts, int he full article here.

22 Comments

  1. Human beings will attempt to “game” any system. People will always seek an advantage, and many are willing to stray into unethical or illegal territory to gain that edge. It is no surprise to me (or most anyone else) that the alleged manipulation has been taking place. The only surprise is how long it has taken someone to produce clear statistical evidence.

    The only real options for the small investors are to: (1) Accept that you are getting reamed and use index investing, (2) Concentrate on a just a few stocks that you can research and predict better than the “pros”, or (3) Buy and hold individual stocks long term and ride out the worst examples of stock price manipulation.

    The big guys with fancy program trading computers and direct trading lines with minimal latency will always have the advantage. And that is not even considering their advantages in terms of prior knowledge of key events and insider trading opportunities. The stock market is much like a casino – the “house” wins big over the long term.

  2. When aren’t they being manipulated? When Apple posts record quarters, out doing everyone in sales, constantly innovating, and somehow drops $20 a share in a week.. then BAM out of nowhere it recovers. Then some analyst is pissed they missed out on it.. so they get their buddies to drop shares and then buy in low.. then yell at everyone in the world to buy up at discount prices!! then it goes up and they sell.. and someone else tanks it….. and the cycle repeats. Those are the most obvious ones but im sure there are people still manipulating the stock at smaller levels to be unseen… Though really… everyone who owns apple stock has seen its pattern in history… its the biggest roller coaster ever, but it atleast is peaking higher that most 😀

    1. That’s definitely what’s going on. In reality that what goes on for most stocks but for Apple is just out of control.

      Seriously how can a company that is posted record earnings?
      EVERY quarter still only be at a P/E of ~15.
      Netflix is 70 and Amazon is 90.

      I think stock brokers are like IT techs. They like their institutional players and can’t get something like Apple because they can’t get their tiny minds around a truly innovative company.

    1. “I’m sure the SEC will come down hard.”
      I am hoping that was meant as a joke.

      The SEC is pretty much bought and paid for, plus understaffed and overworked. Anyone who works there that is really good at understanding this stuff ends up receiving an unbelievable offer to work at one of the investment firms.
      Poof, they’re gone. SEC bring in the fresh recruit, start over.

      As to stock being manipulated?
      Yep, I call it counterfeit stock. Others call it naked short selling.

      See here for an explanation of what it is and how it happens:
      http://www.deepcapture.com/category/4-the-crime-naked-shorts-other-insincere-ious/

      If you already understand naked short selling, then do yourself a favor and read as much as you can on the site I listed.

      It is finally getting reported and investigated but very slowly. We need to light a fire under many people that can imprison or better, hang the crooks on Wall Street.

  3. The US Stock Market is like American football. Too many ***ing rules and too many injuries. Now it’s just a dangerous pile of steaming tedium.

  4. Anyone recall when, about last October, the SEC announced it was investigating something about AAPL ( perhaps insider trades, or something)? I noticed that after that announcement Apple became suddenly less volatile, for a while. Since the new year it’s been back to business as usual. Maybe a new investigation should be announced!

  5. we can all profit when we learn to anticipate manipulation. The trick is to think like the big guy. Once you learn to think like a manipulator, you will anticipate and join them. The only thing the market has in common with a Casino is the excitement, thats it.

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