Apple stock price ‘manipulated’ or caused by ‘natural’ market forces?

“If you’re any kind of Apple (AAPL) investor, you should be aware of the chart at [below], even if you don’t know a put from a call and don’t really care to,” Philip Elmer-DeWitt reports for Fortune. “It shows the value in millions of dollars as of Wednesday morning of the outstanding Apple options that expire this Friday, with the magenta bars representing puts (the right to sell 100 shares of AAPL at a certain ‘strike price’) and green representing calls (the right to buy 100 shares).”

AAPL May 2011 Option Pain

“The theory known as Max Pain says that unless news or other events interfere, the stock will close Friday at or very near the chart’s midpoint — in this case $340 — the price that causes the maximum pain to whomever has the most money invested in Apple puts or calls. And, conversely, the maximum profit for whomever sold those options,” P.E.D. reports. “To what extent this is caused by manipulation or ‘natural’ market forces is a matter of fierce debate. What is clear, thanks to some number-crunching conducted overnight by reader Travis Lewis, is that it’s happening.”

Read more in the full article, which further explains why “the tail, in effect, is wagging the dog in a way that has nothing to do with the underlying strength of the company,” here.

23 Comments

  1. The games or forces will not be able to hold Apple’s stock where it is as Apple doubles in size, scale and markets year after year. It just can’t be held back much longer. So I hold and I know that the Apple tsunami is here. No one can stop it now!

  2. The point of the explanation being, if the stock closes at that mid-point, EVERYONE who bought either puts OR calls at that strike price will lose ALL of their money on those options. If it closes either above or below, at least some of the people who invested in the options will have made money on them (if it is a “call” option, and the stock closes above the “strike” price of the option, the investor can buy the stock at the strike price, sell it immediately at market price and pocket the difference. Same with “put” options; if the stock closes below strike price, the owner can sell buy the stock at current market price, then sell at strike price and pocket the difference.

    Only if it closes at the middle of that chart do most people who bought options lose money.

    1. You don’t “loose” the money, you just wait till it goes back up (which I’m sure it will… unless someone at Microsoft/google decides to finally get a brain)
      you only “loose” money if you sell it then, then you’v locked in the losses.
      Not that i’m for manipulation or any of that, just don’t freak out /if/ this happens. IF it happens, it’s temporary.

      1. You actually DO lose the money. When options contract expires, it expires. Whoever bought it loses all the money they invested in it. The way to make money on options is to exercise the contract before expiration, or sell it (also before expiration) for more than paid for.

        After the close of business on this Friday, all May 2011 options will expire. Owners of those contracts that were “in the money” (where strike price was better than the current stock price) will be able to profit from them. The contracts that were “out of the money” (where the strike price was worse than the current stock price) will become worthless pieces of virtual paper.

        Options can make you a fortune, but you can lose ALL your money in a few days if you let the contract expire.

  3. As for manipulation, average daily volume of trading for AAPL is around 14 million shares. In other words, at current stock price, over $4.5 billion worth of AAPL is traded every day.

    In order to force movement of AAPL in any direction, how many shares (i.e. how much money) would be required? Tens of millions of dollars. Just to move ONE stock (AAPL). Not even the largest of the hedge funds are able to sacrifise that much money, just to make a small one-day move on a single stock.

    1. You don’t need money to do it, just a connection to the news machine. This appeared yesterday dated yesterday when it was actually published in March. Just an error? Attempted market manipulation? I’m sure many people sold their AAPL based on this article, which was completely wrong in Q2:

      “JMP Securities downgraded Apple (NASDAQ:AAPL) to market perform from market outperform on Wednesday.An analyst for the company said the computer company faces “notable deceleration” in sales of its primary manufacturing partner, Japanese firm Hon Hai.The firm’s sales were slowing prior to the earthquake in Japan. The analyst said, “We don’t know the cause of the Hon Hai deceleration, but possible causes could include simply in-line iPhone sales due to more significant Android competition, weakness in computing products as tablet demand grows, andor product risk around the iPad 2.”The company cut its Q2 EPS estimate to $5.10 from $5.49, compared to the consensus estimate of $5.29 per share.Apple has a potential upside of 25.6% based on a current price of $345.43 and an average consensus analyst price target of $433.74.”

    2. you are aware of naked short selling and that brokerages can put an electronic IOU in the system to sell shares they don’t actually own? They don’t have to sacrifice money if they are able to make bets with IOUs that don’t have to be reconciled until after the fact.

      1. Yep. See my post a little further down.

        I call it as I see it, “Counterfeit Stock”.

        It is a huge problem that most in NY just whisper about.

        Glad more people are noticing. Unfortunately many more need to notice and put pressure on reporters and news media to report it.

        Thousands of small companies and startups were crushed and put out of business by this trick. Many of them medical with some promising new cures. But we’ll never know.

    3. Last week there was an attempt to sell 100 shares of AAPL at a low margin moment in the after market, for far less than the previous price. Market administrators cancelled the trade as clear manipulation attempt.

    4. Jim Cramer described exactly how to do this. To move the stock down get people to start posting negative comments about Apple (Job’s health, supply issues, over demand, competition, delayed unknown product). Multiple sources make comments in blogs, investor reports etc so you can’t pin it down to one person. After the price goes down, buy in and then get another group to be upbeat on Apple so the price rises and you can buy at a profit.

    1. The problem with regulation is who is doing the regulating and what authority they are given.
      Republicans have a great scam going. They strip regulators of resources & authority and appoint industry insiders to the agencies when they are in power.
      Example: Bush’s EPA Superfund head was lawyer who had made a career by showing companies how to dodge the superfund rules & laws.
      Then they stand back and rant about how it doesn’t work.

  4. We know perfectly well that the day-trader dolts hang on every word they’ve heard on CNBC, CNN, Fux Business, etc. We have plenty of reports of baseless FUD from the financial services. It’s all manipulation from someone’s point of view. Lately, Apple’s stock price has blatantly been manipulated downward.

    But someone’s getting the clue because the stock price is up today, so far by over 1%.

    Day trade at your peril. Invest and rest. Apple stock belongs over $400 and the insightful traders know it.

  5. theoretically the whole options market is a good thing to insure that supply and demand are met for the stock, so that when mutual funds and 401K managers need to cash out of the stock to make payouts, there are enough available sellers/buyers so the stock does not go sky high or through the floor.

    however, the banksters have rigged the system to syphon off billions of dollars of capital our of the system, to be put into fugly McMansions that are turning Greenwich into New Jersey.

  6. At one time the purpose of stock exchanges was to help companies obtain the capital they needed to survive, prosper, and grow. Ah, the good old days.

    Now the stock exchanges have become nothing more than a glorified version of Las Vegas. Investing in a company that you think is going to grow is no longer important. Instead, traders spend their time figuring out how to play with the numbers to make money.

    So much for capitalism. We are doomed.

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