Phantom trades bedevil Apple stock

“How can a trade that never happened be enshrined as Apple’s all-time high?” Philip Elmer-DeWitt reports for Fortune.

“It wasn’t real,” P.E.D. reports. “It was an artifact of the options market that made it look like someone on the Chicago Stock Exchange had bought $1.26 million worth of Apple for 2% above market price — something nobody in their right mind would do.”

“It was a phantom trade, a chimera, yet it was duly posted as Apple’s 52-week high on financial sites around the Web — including Google and Yahoo — where it still stands two days later,” P.E.D. reports. “These outliers surface from time to time, but Apple seems to get more than its share… Hello, SEC? Anybody watching this?”

Read more in the full article here.

10 Comments

    1. Real money is made through long term ownership, not trading. It helps if it’s your own company or you earn the stock through some means other than buying at market price. The stock market is designed for business owners and investors, not for people trying to get rich day trading.

    2. There’s a difference between being an investor and being a day trader (or now, nanosecond traders). I think the law should do more to incentivize honest, long term investment, and penalize quick turnaround trades more, to encourage greater economic stability.

      1. Agree totally. Easily accomplished with a small transaction tax with an inverse sliding scale based on duration of the holding. Long term holdings pay very low transaction taxes, say .01% for a 24 hour holding, short term holdings pay a very high tax, up to 10% for a 10 millisecond holding. Completely automateable. Use the income stream to fund higher education or real universal health care.

    3. Unfortunately, you are much more correct than you may know.

      Stock prices today (and really for about the last 40 years or so) are only extremely loosely based upon the value of the company and its earnings. You only have to look at the extremely wide range of P/E ratios to see this.

      It’s all about gambling that the stock will go up or down no matter what is happening with the company itself.

      You only have to remember back to a time when Apple was just coming out of the dark days. Apple projected that they were going to make a reasonable profit the next quarter. However, due to events that happened *during* the quarter, Apple issued a statement that it would likely make about 5% less than the original projection. Apple still claimed they were going to make a very reasonable profit, and considering that in past years it was losing huge amounts of money, this slight downgrade — and the inherent honesty in adjusting their projections — should have reassured Wall Street.

      The exact opposite happened. Within 48 hours the stock price (at one point) had dropped to about half of what it was before the announcement.

      Apple was still going to be shipping new, great products. Apple was still going to make more profits than it had for a similar quarter in several years. Nothing in Apple had inherently changed. However, the GAMBLERS decided to take their money and run and the stock tanked. The stock value (the value of AAPL, not the value of Apple) became a self fulfilling prophesy.

  1. I think the brokers spend most of their time coming up with new ways to rig the system. They know the computer systems and how they react to certain scenarios and set up the market to trigger the automated moves. When you can predict the direction of a stock there it is easy money to make.
    The options market was supposed to add volatility and equity in the market. It seems to me that all it does is provide another another for stock manipulation.

  2. “They watch for all-time highs and Shooting Stars. They set up complicated conditional trades based on a stock hitting pre-set marks.”

    Oh, yeah, the dog chasing its tail – AKA computerized trading. Algorithm chasing algorithm and none of it having anything to do with stock value. I personally find the “chartist” ilk to be the most pretentious and dangerous in this form of market manipulation.

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