The Daily Show

How the market in Apple 'weeklys' is rigged

May 15, 2011: 9:32 AM ET

If you're looking for evidence of manipulation, Friday's close was picture-perfect

Volume rose sharply and Apple's share price collapsed in the last half hour

"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.


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