If you're looking for evidence of manipulation, Friday's close was picture-perfect
"The easiest way to think of options," wrote The Market Skeptics's Eric deCarbonnel in a prescient 2009 post, "is as a type of insurance. Investors pay a premium to protect themselves against sharp swings in the market. If these sharp swings don't happen, those selling options (option market makers) keep the premiums as profit."
"In a legitimate free market," he continues, "every single option market maker would have already gone bankrupt, especially with the volatility over the last two years. Luckily for option market makers, U.S. markets are neither legitimate nor free."
If he were looking for a case to make his point, deCarbonnel couldn't do much better than the trade that started last summer in Apple "weeklys" -- puts and calls that expire every Friday. As we saw in Thursday's post, Apple's (AAPL) share price tends to gravitate with uncanny accuracy toward the closing price that causes "max pain" to option buyers and maximum profit to option sellers -- often in a burst of last-minute trading.
In that respect, Friday's close was picture-perfect.
There's something very fishy about the weekly options market. Is it time to reel in the bad guys?
It was 3:48 p.m. on Friday April 29 and traders who had purchased Apple (AAPL) April 29 $350 "calls" -- options that gave them the right to buy Apple shares in blocks of 100 for $350 per share -- were sitting pretty. The stock was trading around $353.50 and those calls were worth MOREPhilip Elmer-DeWitt - May 12, 2011 1:00 PM ET
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