“The Max Pain theory predicts a stock will close at the strike that destroys the most value from option buyers,” Travis Lewis writes for Seeking Alpha.
“Because of this, Apple usually trades between certain prices and is being artificially held down and at rare times, held up,” Lewis writes. “In essence, the options market is holding AAPL captive; the common stock is now a derivative of the options. The advent of weekly options has exacerbated this problem and, for the most part, has AAPL in lock down mode.”
Lewis writes, “When you try to pick an exact max pain point, e.g, $335.00, well who has the bigger bank account? The person who wrote the $335 calls or the $335 puts? So I don’t try to fine tune it but sell the outside ranges. Call it manipulation, call it perfectly normal delta/gamma hedging, just don’t say options are not controlling AAPL… If you can’t beat ‘em, join ‘em.”
Read more in the full article here.
[Thanks to MacDailyNews Reader “Fred Mertz” for the heads up.]
SEC needs to crack down on options shenanigans, bring back uptick rule, ban naked shorting.
Parasites should be taxed at a much higher rate.
Apple might consider a 3-4:1 stock split just to remove the concentration of shares from the hands of big institutions which basically choke it and manipulate 70%+.
Apple might consider a 3-4:1 stock split just to remove the concentration of shares from the hands of big institutions which basically choke it and manipulate 70%+.
Huh??????????
What are you talking about? Splits just means that a share you hold today is more than one share tomorrow.
Apple can split as much as they want, and the institutions will still own 70+%. As you, I, and they know, Apple is worth holding.
BTW, those evil institutions are your retirement money, etc.
“Huh??????????”
How about you do something amazing?: think beyond the obvious…
If shares became 3-4 times cheaper as a result of such split, maybe there would be a huge influx of private buying that wouldn’t think twice about owning Apple at a much cheaper price that would allow a much bigger holding position…Ultimately that might dilute institutional ownership dominance…maybe…
You do realize a split does nothing to make the stock “cheaper”, in the end it’s the exact same price. It may appear cheaper to the weak uniformed investor but thats about it…
This is exactly why amateurs should not play the stock market. Anyone who thinks a $5 stock is cheaper than a $500 stock has absolutely no business trading stocks. But thanks to clueless idiots, I guess that is how people like me make money in the stock market (which is why the banks and brokers want idiots to join the game). READ SOME BOOKS you idiots!
… “play” the stock market. Especially the PROs, who tend to “cheat”.
There are two basic values of “a stock”. One is “the cost of one share of stock”. Guess what, when a stock splits, the price of a share is cut in half (or some other fraction). This is important to small investors who want to buy a “lot” of stock, that would be a block of a hundred shares. Only the truly ignorant are not aware that $5,000 worth of stock is still the same $5,000 investment in the company after as before – you may get twice (or whatever) as many shares but the percentage of the company your money buys does not change.
None of this matters to me, as I trade in Dividend-bearing stocks in an effort to reduce my risk exposure. AAPL is one of the few stocks that has even approached my results over the past half-decade or so. Dividend or no. Do I wish I’d held on to it? Saying it a different way … would I trade the much better results for the ulcer I was growing?
Intelligent investors know that, but my business partner who is plenty smart (or at least I thought so for a long time) said to me “Apple is too high for me to buy at 335.” I just shook my head.
I do understand the concept of risking 335 dollars versus 35 dollars. It goes in the same basket of why people will buy a lot more of a 99¢ item versus a 1$ item-perception. How many raffle tickets will you buy at 100 bucks? How about 1 dollar? (I purposely leave out the details.)
And that exact horde mentality is what what’s enabling such a huge concentration of Apple shares in institutional investor’s manipulative
hands.
@ breeze — couldn’t agree more, bring back the uptick rule, ban naked shorting.
I get the sense that puts and calls on a stock are synthetic variants of derivatives in that no physical exchange of stock takes place at the expiry of the option. I believe options were first designed as loss limiters to put a ceiling and a floor to price movements in the stock so that if you went out of band your losses would be backstopped by the type of option that you bought or a combination of puts and calls.
So I would presume that buying naked puts and calls is the equivalent of going to the casino and betting that the number 21 will show up at the turn of the wheel. I suppose in probabilistic terms it’s not the same as trying to predict the outcome of a number between 0 and 36 but that over time you could engage in an analysis of the delta of the stock by looking at its volatility and then try to make bets either way.
Hahaha you actually have no idea what you are talking about. It’s pretty funny to me but I guess I used to be clueless a long long time ago too.
Exactly what I was thinking!
Huh? I have no idea what that guy just said, but it sounds right.
The guys who are “selling” options, both Calls and Puts, want them to expire worthless, so they keep the price of the option they sold. MaxPain, is the notion that there’s a spot between Calls and Puts, where the maximum amount of the options outstanding will cancel each other out, creating maximum profit for those people writing the options, and maximum pain for those holding or buying those options.
If you think about it, this is like the bookie in Vegas, who is selling bets on sporting events. The idea is to run a matched book, where the bets on both sides, cancel each other out, and the bookie keeps the vig. The line is set to accomplish that. In this case, the option writer is the bookie, and he wants to keep the vig, so he manipulates the stock price with some small buys and sells of the underlying shares to drive it toward the MaxPain point where most of the options expire worthless, maximizing his profit.
If the MaxPain option theory is correct, then MDN, should instead of running a stock ticker, should run a MaxPain indicator, so that we can see where the stock should be heading. Right now, since it’s Friday, and the end of weekly options, the price is hovering right below $345, after having jumped up from $337 last week, which didn’t really conform to MaxPain theory. Is MaxPain pinning Apple at $345 today?
If you have blocks of 100 shares of AAPL you should seriously sell to open calls for them at prices unlikely to be reached for months like June, July August. It’s a great way to earn some almost riskfree money. Its like earning a Dividend from AAPL. I wish I knew this 6 years ago
Thanks. I will buy those options from you.
Not to worry. The Max Headroom theory says that AAPL still has plenty of room to grow. Catch the wave!
c-c-c-c-c….
It’s not that much of a manipulation conspiracy. The fact is, some people believe the stock will go up and some believe it will go down. Outside of people who invested in Apple by buying the stock, others have placed bets on where Apple is headed. The options market has a negligible effect on the stock overall, and his advice is actually contrary to the impact it would have on the stock.
Suppose Apple blows away expectations when it releases earnings this month. The stock will go up, and shorts will have to cover their losses, sending the stock up even more. However, it’s really how Apple does with earnings that matter.
There are a lot of number gamers engaged in self-promotion around Apple stock these days, because Apple is such a bright star and incredibly hot. It’s also breaking conventions and in many ways unpredictable. This is why Warren Buffet won’t invest in Apple.
These number gamers are trying to promote complex formulas for explaining Apple stock, when the answers are really simple:
Apple is experiencing phenomenal growth. When evaluating what a stock should be worth, you look at earnings, but if you look at the TTM (trailing twelve months), you’ll see that Apple wasn’t anywhere near the company it is today a year ago, and next year they’re likely to be even that much more.
During accelerated growth, you usually get high P/E ratios. However, Apple has a lower than industry P/E ratio, despite the misrepresentation in earnings.
This is due to several things, including a lack of understanding of the accelerated growth, theory of large numbers, and the non-performance of the huge amount of cash on hand.
These things are fine, and the stock will still out-perform, but don’t expect Apple stock to ever be fairly priced compared to other stocks. To simplify what the previous paragraph states, Apple is just too big and growing too fast to be fairly priced compared to the rest of the market.
B.S.
AAPL will be $400 next year!! You can bet the farm on that!