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The 20 biggest and most active Apple-trading hedge funds

May 27, 2011: 8:53 AM ET

Who's behind the weekly Max Pain phenomenon that has become the tail that wags the dog?

Click to enlarge. Data: tickerspy.com. Charts: PED

In our ongoing quest to understand what part the trade in weekly Apple (AAPL) options plays in keeping the company's stock price from reflecting its performance (see here, here and here), we had a chat the other day with Mark Sebastian, a former market maker at the Chicago Board Options Exchange who posts frequently on TheStreet.com.

He's been encouraging individual investors to piggyback on an options trading strategy some large, as yet unidentified, players have been pursuing that generates steady profits when Apple trades up and down within a relatively narrow range. (See Max Pain.)

The scheme, which typically involves buying and holding several different options in a range of strike prices (see, for example, the iron butterfly), was probably developed, he says, by "a couple of options-oriented hedge funds."

"They'll keep playing it," he says, "until it doesn't work anymore."

Which hedge funds would those be?

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