Even for a stock as volatile as Apple, Wednesday was a weird one
According to Terry Gregory, who keeps track of such things at AAPLInvestors.net, Apple (AAPL) was set to register its 8th highest close of all time -- $408.25 -- Wednesday before the selling started. By 4 p.m., it had fallen to $402.64 a share, its 19th highest close.
Gregory's one-word comment on Investor Village's AAPL Sanity board: "Ugh."
Subscribers to the theory of maximum pain -- which holds that stocks whose options are traded on a weekly basis tend to close each Friday at a price that rewards institutions selling puts and calls and penalizes investors buying them -- will note that in Wednesday's action, Apple's share price fell $5.61 closer to max pain, which currently stands at $400.
Given that there are 929.41 million shares of Apple out there, that $5.61 drop shaved more than $5.2 billion off the company's market cap.
Strike prices range from $335 to $400 as traders scramble to deal with a market in free fall
A hedge-fund trader hoping to make some quick money in Apple (AAPL) weekly options would be hard-pressed to make sense of the chart at right, a snapshot of thinkorswim.com's AAPL options board taken at 10:30 a.m. Monday morning.
The bottom two graphs show open interest in Apple weekly calls (left) and puts (right) as of MOREPhilip Elmer-DeWitt - Aug 8, 2011 11:35 AM ET
In 52 weeks, Apple shares closed within $1 of the so-called Max Pain range 39 times
To ordinary investors, the trading in Apple (AAPL) shares last week must have looked a little crazy. On Monday, when the Dow was up, the stock fell, only to shoot up $9.98 (3.17%) the next day. On Thursday, when the Dow was down, the stock was up $8.62 (2.67%). If Apple could have held on MOREPhilip Elmer-DeWitt - Jun 25, 2011 8:12 AM ET
Who's behind the weekly Max Pain phenomenon that has become the tail that wags the dog?
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 MOREPhilip Elmer-DeWitt - May 27, 2011 8:53 AM ET
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 MOREPhilip Elmer-DeWitt - May 15, 2011 9:32 AM ET
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