AAPL closes at exactly $500.00
finance.yahoo.com
finance.yahoo.com
The closest strike price for options expiring today, with the highest open interest, was the 500 strike price. If I remember correctly, there were 30k+ contracts at this price. On Thursday night, those options were priced at around $4.95, or $495 per contract.
There was a great deal of incentive for market makers to pin the price of AAPL at $500, rendering all those options worthless.
Looks like it worked.
Here's my stab (way off I'm sure): So some people have options of Apple's stock. They have to buy 100 shares for every option (contract) they have. The options make interest from when they were offered, and they have to make a decision (strike price) when a certain stock price is reached (is this determined by the company offering the stocks?). As Apple's stock was more expensive at the time than the options, there wasn't an advantage is taking up the options?
First, a quick search on bloomberg reveals that stocks belonging to the S&P 500 (with liquid options) do not tend to close at exactly the most liquid option strike price on expiry dates, so a close at 500.00 is not "expected" for AAPL, or any other stock, today.
Second, if you'd take 30 seconds to look up what an option is, you'd discover that option can be either calls or puts (options to buy or sell, respectively) so when the spot (market) price of AAPL is 495 at expiry, the 500 call is worthless, but not the 500 put is not. Third, the market for options is not the only one responsible for the spot price, if only because a lot of people actually trade AAPL stocks independently of AAPL options.
Finally, most people who trade options do not give a damn about the spot price, instead they care about the (implied) volatility. Roughly, it means your profit/loss on an option position is largely immune to the moves in the underlying stock price (just look at people hedging variance swaps).
> But now, however, the gains of the Summer have come back in and Apple's share price has only to stay flat for the next two months for all those call options to expire worthless. The institutional money managers that wrote those options, if they were to try to manipulate Apple's share price, have a lot of incentive to keep Apple in place for a short time, then drive it higher:
> Apple is getting a lot of buzz for being undervalued here, but there is an enormous amount of pressure on the price at these levels that will be lifted after options expiration. If you like Apple, consider having some patience here and making a buy at the end of the day on Friday, January 18th, 2013.
At least this is a stock, not a commodity like ahem oil.
My guess is that it's just some insider selling, and it's coincidental that it closed at $500 on option expiry date. Otherwise it would be hard to explain how it ended at $486 on Wednesday.
Of course many people will disagree but hindsight is always going to be 20/20, and many people like to pretend that they know something.
But then again - there aren't any tests to pass before one can trade - so trade away.
But remember - you both look like dancing pigeons to professional traders (http://rationalwiki.org/wiki/Skinner_box).
Professional traders like this cat?
http://www.npr.org/blogs/money/2013/01/14/169326326/housecat...
It's not hard to make money in the market. It's not hard to see real, after-tax, inflation adjusted gains. Carefully picking companies in a buy-and-hold strategy is a reliable place to park your money for 3-8% growth.
These guys aren't pretending to be day-traders. Looking at fund performance, as I'm sure you know, very very few managed funds beat the market with any consistency. There's too much hand-wavy "the big banks and funds play the little guy as a pawn" paranoia. Yes, you can make yourself a pawn by trying to play Gordon Gecko with your E-Trade account. But cost-averaging into a stock that you chose and believe in is both effective and open to everybody.
And who knows. There are well told stories of amateur investors making literally billions of dollars finding holes in option contracts that the hedge funds and IBanks missed.
They started with $100k pooled together from 3 guys' life savings. How much did they make?
Exactly.
The wikipedia article, short as it is, covers through 2010 when that $100k grew to "100 to 300 Million." Read the latest write-up of them in FT. It's a billion dollar venture now.
If AAPL were underpriced, there would be enormous buy pressure to the point that it is no longer underpriced.
(Sidenote: Among one of the loudest proponents of the conspiracy theory is John Gruber, who today proclaimed that $500 proved it. Only the article he linked actually said $550. It turns out that there are psychological pivot points that are often hit nearing close. The market is made by people, and people understand and gravitate to emotional numbers)
But suppose the founders of Airbnb came to you when they were raising angel money. I'm sure they were convinced at that time (maybe objectively irrationally) that investing in their company was a "surefire deal." They were passed on by Fred Wilson (the equivalent of your "rich person with hundreds of staff"), among countless others I'm sure.
By this point, their returns are certainly far more than 12-15%.
There are lots of ideas, but the tried and true one is 'Ponzi Scheme' :-)
I'm not an experienced trader, but I know about the efficient-markets hypothesis and that analyses such as this one are often "priced-in" to a certain extent. But when the market opens on Tuesday, AAPL is going to go up or down. "Underpriced" is a measure that can only be fully assessed in retrospect -- if AAPL goes up on Tuesday, it was underpriced tonight.
You're right that there are tens of thousands of large players with billions, all trying to screw each other over. I believe that 100%. But there's still room in there for Joe Normal to buy some AAPL stock. If his hunch is correct, the stock will go up in value and he'll make money. Individual people still make money trading stocks, and it's "naive" to think it's solely based on luck.
The market is speculative. A lot of people are speculating that Apple's best days are past them -- which is how $9 billion worth of AAPL was sold in the $500 range on Friday -- while a lot of people are speculating that it is still a growth company. Those competing interests set the market price (and FWIW those who bought at $700 -- if they actually still believed in that entrance price, would be doubling down right now for dollar-cost averaging, which itself would pull the price up).
What I said above is not at all what the conspiracy theory is, which is where everyone apparently thinks everything is fantastic and it's going to shoot to the moon and there is no uncertainty or risk, but for options reasons everyone is looking the other way for a couple of weeks/months and letting it slide because something-something-options.
Market manipulation absolutely happens, and it happens a lot. However it generally targets low volume, low cap, low interest equities, or less common instruments like resource futures. It would be incredibly expensive to manipulate AAPL, it being one of the most watched, most traded equities.
Daily stock market quotes are like comments or articles on gossip blogs - it's the opinion of ~0.001% of the market for ~1 second - and the opinion that they give is usually wrong.
This basically causes all calls/puts option contracts on either side to be worthless. It is commonly accepted "fact" (note the quotations) that stock prices are manipulated to some degree on options expiration days to minimize losses of contract writers, who could typically be traders from hedge funds or from some investment bank.
E.g., if you took an at the money (just at 0 intrinsic value) option for a year out, the price might be 20% of the strike price. That 20% will slowly fade over the course of the year. (Or possibly go up, if the volitility of the stock goes way up). If, in 6 months, your stock was in the money a bit, the option would still be worth more than the intrinsic value. (though, dividends can mess with that, and some people excercise options early to catch dividends)
That said, I don't really believe the manipulation story. Perhaps a small amount of market manipulation occurred, but it's not the reason AAPL is in a slump. For that, I think mental state and market sentiment are far far more powerful factors.
Weeklies expire every friday (except on fridays when it is also a monthly expiry - the third friday of every month).
Quarterlies expire the last business day of march, june, september and december.
If, at expiry, the spot is 'x', puts with strikes > x are worthless and calls with strike < x are worthless too. This is true for any x, indepently of HN's belief that x is somewhow magical.
2) The braying about banker manipulation is necessarily louder here because AAPL is beyond popular with retail investors. Look at just about any charting/analysis site, it has been the most popular symbol on most days for years.
Anyway, let me tell you this: I work for a (fairly) big 'global macro' hedge fund. Historically we traded fx and rates, but we started (slowly) trading equity last year. The rationale given to our investors was: "the equity market is full of arbitrage opportunities because it is very much a retail market and people tend to trade out of 'gut feelings'.
We are not manipulating the market. You are, and we are profiting from it. Suckers.