Swarming: Short interest in Apple shares increased 153% in the space of a year

“‘Swarming,’ writes Mal Spooner, a Canadian money manager and financial columnist, ‘is the term now applied to the crime where an unsuspecting innocent bystander is attacked by several culprits at once… Because swarming at street level involves violence, it is criminal. However in financial markets it is perfectly legal,'” Philip Elmer-DeWitt reports for Fortune.

“And that, he says, is what happened to Apple (AAPL) last fall when traders detected weakness in what had been Wall Street’s darling stock and started selling it short in large quantities,” P.E.D. reports. “As evidence, Spooner offers the chart above that shows short interest in Apple growing from 8.1 million shares in April 2012 to 20.5 million shares today — a market value roughly equivalent, he points out, to the gross domestic product of Malta.”

Read more in the full article here.

Mal Spooner writes for You and Your Money, “The irony is that short-sellers borrow the stock from real shareholders (via third parties) in order to sell it on the market. After the selling pressure wreaks havoc on the stock price, the short-seller then buys shares at a much lower price, returns the ‘borrowed’ shares to those real shareholders and keeps the profits.”

“I just can’t figure out how aggressively attacking a company’s share price, selling stock that the seller doesn’t even own, for the sole purpose of transferring the savings of innocent investors into one’s own coffers (whether it goes to charity of not) is a noble thing,” Spooner writes. “Isn’t it kind of like a bunch of thugs beating someone up and stealing his/her cellphone declaring it was the loner’s own fault for being vulnerable?”

Read more in the full article – recommended – here.

[Thanks to MacDailyNews Readers “Arline M.” and “Ron C.” for the heads up.]

21 Comments

  1. All the whining about shorts, manipulation, lack of SEC, FBI, whatever misses the point. Wall Street manipulators are like predators – they find weakness in the herd and attack. Tim Cook appears in public, he speaks, he’s interviewed on national networks, sits with the first lady, etc… looking weak, clueless, hapless. Prey.

    A note of thanks to MDN for tolerating my long running call for the replacement of Tim Cook. Neither Apple Inc. nor AAPL has any possibility of returning to what was as long as he is the CEO.
    Noting that you have deleted my last couple of posts, I will simply now withdraw. We both have my position iCal’ed so we will see which of us has the integrity to acknowledge the other when the time comes. And it will.

    To those posters who have denigrated me personally, you have defined yourselves as ignorant sophomoric fools. Know this, though – you and untold legions like you – are standing in the way of the future

    1. If you want to be taken seriously you need to cite sources. For the last three months articles have rolled through here providing tons of evidence to the contrary of what you merely proclaim to be so and in every case you use generalities to try and bolster your claims. The evidence at every turn is that Tim Cook’s leadership has nothing to do with AAPL’s price decline and you expect everyone to believe you just because you say “everyone” else is saying what you are saying. And yet articles like this one show a completely different causation. It’s become as regular as clockwork around here: An article comes out giving insight into factors affecting the price of AAPL (and never blame the CEO) and “ppeterson” posts a message saying Tim Cook has to go. People are only responding to you because they are tired of your weak reasoning and persistence in proclaiming your opinion as the fact of the situation.

    2. I think you forgot to thank your mother for neglecting to flush after having excreted you. And what happened to the “I’ll just go away now” promise?

  2. The motive is to rob shareholders of their invested dollars.

    This is criminal. Shareholders need SEC and regulator protection and Apple should also demand action, both as protection of their shareholders and as protection of the entire US public corporate structure that stands to be harmed detrimentally if this is overlooked.

    Instruct your financial institution that your shares are not to be available for securities lending purposes.

    1. “This is criminal” or “This SHOULD be criminal.” If it’s the latter, congress presumably would have to take action. Don’t look for that to happen. Too much money involved here.

      1. It IS criminal and should be recognized as such.

        Unless it is, the whole system is at risk exactly because of how much money is involved.

        Many investors hold huge investments and can pressure brokers just as much as the big money, that unless they comply with instructions that forbid the trading of shares, they will pull out of the specific brokerages that allow the trading of other people’s shares.

        The rule should be that unless you give explicit permission to lend out your shares – they can not be lent out- unfortunately, brokerage firms pre empt clients from dictating these conditions by burying language in margin and credit agreements that permit them to do it. This language can be eliminated by waiver at the client’s insistence.

      2. EXACTLY SO.

        Shorting stocks SHOULD be illegal. However, because there is so much money to be made in shorting stocks on a massive basis (huge shorts become a self fulfilling prophesy) that money buys a LOT of influence with both lawmakers and regulators.

        Who cares if the long term investors get hurt? They’re not the big money makers on the Street. Thus they don’t have the most influence.

        It’s no different than the people doing micro transactions on millisecond time scales. They’re not doing it to do *anything* but make money. (Do billions of transactions a day and even if you only average 0.001 cents profit on each transaction you’ve ended up with a significant profit for the day.)

        Their actions have absolutely nothing to do with the companies involved. Certainly everyone with two functioning brain cells can easily see that a company’s value (not the stock’s value) does not change on a millisecond time scale. Transactions like these have to do with extremely short term changes in the stock valuation.

        SHOULD millisecond time scale transactions be illegal? IMNSHO, yes. However, too much money is being made by the people doing that and thus lawmakers and regulators will never make it illegal.

      3. Naked shorting, which is short selling WITHOUT actually borrowing the shares, is rampant. It’s effect is to dilute the share price by putting shares into play that were never issued or purchased. It is criminal, but has anyone ever been prosecuted? You already know the answer to that one. That combined with the demise of the uptick rule makes it easy and inexpensive to drive the price of any company into the toilet.

        And BTW, I would have tipped MDN to this story myself, but they only seem to listen to Fred Mertz, so I don’t bother anymore.

    1. I’ve been thinking this past six months that Apple should take some of that stock buy-back money they’ve been planning on using and make some precision buys at a time that causes the most pain to the short-sellers.

      A couple billion here and there at critical times may be enough for the short-sellers to be seriously hurt and cause them to run off and bother some other company. (if they’re still able)

      Serious question, is Apple legally able to do something like this ? If so, why haven’t they already?

  3. I did not read the full article because the excerpt sounds like total BS to me. But shorting a stock (put option) is not and should not be criminal. It is fundamentally no better and no worse than going long on a stock with call options. Options, when properly applied and regulated, help to keep the market liquid and healthy. And they can be very helpful to an investor who wants to mitigate risk.

    It is the misuse and abuse of options (pump and dump on the upside or scare and buy on the downside) that is the problem. Individual investors will always get screwed by the traders with access, money, and power. Program trading for instance, creates lots of money for a few while sometimes royally hosing the rest of us when it goes wrong.

    I just wish that I had hedged my AAPL when it was around 700… I guess we all can’t be as smart as GM.

    1. One more thing… I don’t like naked options, which is probably the focus of this article. Naked options are sheer speculation that puts the rest of us at risk. I believe that you should have to own the stock to leverage it in that manner. I also believe that the short sell rule should be put back into effect. That would curb some of this excessive opportunism.

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