Apple Investors Were Pinned on Friday

On Friday I talked about Max Pain and Option Pinning. These are well known phenomena in the investment world and Friday these concepts were displayed in textbook fashion with Apple (AAPL). But it went beyond that. Apple investors are getting screwed by the will of big money and hedge funds. But I’m getting ahead of myself.

For the novice investor or trader, they would have looked at Friday's action with naive objectivity and concluded that there’s rampant manipulation. While this may be true, it’s not for the reasons they might have concluded. For example, the market continues to advance on weakness in Oil and what appears to be capitulation by the Bears. This is great if you’re pent up for a rally, right? Then why isn’t Apple enjoying in the spoils?

While it’s true that the Tech Sector was held back by poor earnings and guidance from Google (GOOG) and Microsoft (MSFT), that doesn’t seem to explain why RIM (RIMM) gained in the face of a downgrade. And it certainly doesn’t explain why Apple declined in the shadow of consumers literally lining up to purchase Apple products out the Apple Store doors, around the corner, down the street, block after friggin' block, day and night!

Sure, Apple was pinned down because Max Pain was below the current trading price, and the battle ensued while traders tried to exit their positions minimizing losses. And RIMM was lifted partly because Max Pain was above the current trading price, but weren’t they also downgraded? I thought downgrades in Bear markets are like the death bell. But then I look across at Financials, they’ve been falling off the cliff, yet today they’re up HUGE! So, I guess all that theory of pain, pinning and bear markets just goes out the window.

So, what is it that really moves the markets? I guess in the long term fundamentals do win out. But only during Bull markets. In Bear markets, all the nefarious doers, hedgies and unscrupulous money baggers come out from the underworld of the markets.

Click to enlarge: This is the intra-day chart of AAPL on Friday June 18, Options Expiration Day. May Pain was $165. I have outlined the steps that the Big Boys use to put the screws to the average Joe investor. Noted the low right before the close!

What really moves the markets is the will of big money. They pick on stocks like AAPL because it has high liquidity and extreme volatility. With a stock like AAPL, they can choose a direction, up/down it makes no difference, and with a little prodding, easily move it in the desired direction. When the move gets exhausted, they move it in another direction, all the while crafting their positions to take advantage of the rest of us who get dragged along and sucked dry of our hard earned capital.

Disclosure: Long AAPL.

Comments

[timfogl]

Will the market "ever" in the future be based on the a companies fundamentals and not the will of the "big boys".
Would like to have some faith...but it is hard...with the brutal tactics that are employed...sigh.

[Jared]

This is exactly why you're better off buying options that expire a month or two out, then selling them long before they expire. Average Joes can get crushed on OE days.

I have been building a Straddle Buy position on August options to play Monday night's earnings, using $125 puts and $230 calls - roughly equal dollar amounts, but not necessarily an equal number of contracts. I'll finish building that position some time before Monday's closing bell.

I don't expect either to ever be in-the-money before August's OE, but the stock will almost certainly swing so wildly in one direction or the other Tuesday morning that I should be able to unload the more favorable options (be it calls or puts) for a considerable profit that morning. It will easily offset the loss on the options in the other direction.

If the puts become the more favorable play (meaning the stock goes down Tuesday), I'll take the profits and buy $300 2010 LEAP calls! This is still a high growth story.

[User 209203]

I totally agree with you, is cristal clear !!

I´ve being following apple stock and options for 2 years now. Every options friday is the same story.

What I don´t get is how do they pull th stock lower? do they just go out and sell large volumes? or they make "cross operations" selling and buying at low prices?

An the other question, there's nothig the SEC or another institution can do to stop this kind of manipulation?

thks

[NetworkEffect]

amen brother - stocks go up and down because people buy or sell the stock, not for any other reason. and big money makes a stock go up or down and spins a story around that regardless of the data - and almost 100% of the time, they just pick the opposite direction that the small money players are investing. so if main street is selling, wall street is buying, and if main street is buying, wall street is selling. this is obviously not fair. but is it legal? or, better put, does everyone think that this is a sustainable way for markets to run over the long term? and if not, how can it be policed? in other words, you don't really need a reason to buy or sell a stock. you can do whatever you want. but if that's the case, then this is a zero sum game and a smaller and smaller number of players will take all the money. Kind of like the kid who grabs the ball on the playground and goes and plays in the corner by himself. he has the ball, but no one to play with. if you play this scenario out, at some point, wall street wont have anyone to play with, right?

[The Fox]

My God, man, stop being such a cry baby. That is the difference between good traders and bad traders. Good traders go along for the ride (with the big money) while bad traders complain about "manipulation&quo... You were wrong about the direction of AAPL on Friday. Get over it. Who cares about long lines for the new G3 phone...don't you think huge sales numbers have been "factored" in (even if they turn out to have been conservative)?

Also, in regards to RIMM...look at valuation. AAPL may be the "better" company, but RIMM sports a PEG of .86 to AAPL's 1.24. Big difference. Additionally, an telecom analyst (don't remember which) came out on Friday and stated that the G3 iPhone had ZERO impact on Blackberry sales last week. Whether that is true or not is anyone's guess. The point is that RIMM is cheaper and its business has not been effected (according to this analyst) by the new release (yet).

If the $6.00 drop on Friday bothered you...wait until after earnings. You are going to have your head handed to you. AAPL is priced for perfection and this whole "conservative guidance" going forward BS is going to bite them in the ass. The street is looking for $1.08. The "whisper number" is $1.12. God help them if them come in lower than that. Investors will get it even worse if AAPL doesn't raise year end numbers considerably OR they state that iPhone sales will start to cannibalize iPod sales. Look out below if the conference call isn't perfect news going forward. If you don't believe me then look at RIMM. They reported 107% year over year EPS growth and got hammered.

Disclosure: No current position in AAPL or RIMM

[DutchMark]

Why is the 'rest of us dragged along and sucked dry of our money'? Only happens if you belong to the group that sells when it went down and buys again after it went back up.

Just hold on to your shares and you'll be fine. Cheer as the stock drops lower, until it reaches a point where you gladly buy more. And cheer again when earnings show another good gain over last year.

Or in kindergarten terms, if you feel the big boys are playing with you, take your ball and go home.

[nerveclinic]

When you say Apple investors were "pined down" aren't you refering only to investors who have options or those who panicked and sold?

I added to my position the last couple of minutes of trading and got in near the low.

[Partners inGrime]

Looking forward to Monday's conference call.

One thing about people lining up to buy iPhones and then finding the shelves bare ... they often go into the Apple store and buy something else.

And don't worry ... they'll be back for an iPhone.

AAPL looks good long term.

[marcos]

Yeh, right. but it still hurts.

[User 229160]

So when are we going to see AAPL over 200???

[will]

F Apple and its BS management team. Any company worth its salt would not allow these vicious short attacks and outright manipulation of their stock price. But then we are talking about Apple, who don't give a rats ass about the shareholders or average investor. Apple cares about Apple and they do things at Apple's pace. Screw the shareholders is their motto. They could care less about you. Have fun Monday when they stick it up your as- with their typical BS games and with Peter at the helm, your DEAD!

[Apple Heavy]

Apple's management has steered the company onto a path of profitability and sustainability.
Long term shareholders have been handsomely rewarded. Play thre trading game at your own peril.
And, go vent at the people who create the financial crisis, the commodities bubble, as well as the north american auto manufacturers.

[jakedeez]

You don't want to be affected by "big money"? Stop trying to game earnings, its much harder then just sitting on the sidelines and waiting for the right not... which is really not ever during earnings.

[will]

I can see it now, Apple beats but issues lower guidance, Peter hasn't a f- clue, stock sells off, and the hits keep coming. That my friends is Apple not giving a F about anyone but themselves. Have a nice night!

[will]

Put your money on Bank of America. They will lose $5b but it will be better than $5.5B and the stock will rise 30%. Apple will beat, lower, and their stock will drop 20%. Bank of America loses $5B but what a deal!!!!!

[tilliespants]

Will... go invest in B of A and Microsoft too! You are too smart for most of us! The only consistent winner in my basket has been Apple but what do I know...I sold Microsoft at over $100/ and bought Apple at under $60/!

[Robcal1]

None of you can sit there and tell any of us that Apple management is not solely responsible for their continual stock price collapse come earnings time!!! Wall Street knows Apple's business, Apple cannot continue to "fool" Wall Street!!! Wall Street controls 85% of the money traded. Apple management's responsibility is to properly report and guide the future results of the company. Apple management clearly fails to guide correctly every quarter, and Apple's stock price is punished accordingly.

[Robcal1]

Sorry, I mean mutual fund managers control 85% of the money traded.

[Apple Heavy]

Apple doesn't have to provide guidance at all, but they do and they do so prudently and conservatively.
No one can be serious about faulting Apple Management!!

[Robcal1]

If they didn't provide guidance then the stock would really get punished! Then Steve Jobs could continue to make $1 per year for as long as he's CEO of Apple, and he can continue to lose all of his money to Apple stock DEPRECIATION. If Apple management didn't care about the stock price then why did Steve Jobs send an e-mail to his employees telling them to "hang in there" when the stock dipped from $203 to $130 at the time he made the comment?

[nixtr]

No one except the hedge fund directors can tell where the stock will go tomorrow after the bell...but if you are not too far leveraged into it, you will definitely win out in the long term...it's just a question of not getting driven out by needing to cover margins or sell to pay your mortgage.

Don't put yourself in the piggy position and you won't get slaughtered.

In 2009-10 this stock will be double its price today.

[will]

Like I said last night, read above, BAC lost money and are up 15% pre-market. Apple will get slaughtered today for making money. It's a fools market.

[Apple Heavy]

...why did Steve Jobs send an e-mail to his employees telling them to "hang in there" when the stock dipped from $203 to $130 at the time he made the comment?...

Because he cares about employees....., especially those who are shareholders!!
As I said, no one can be serious about faulting Apple's management, including the CEO, for volatile price action caused short term traders.

[JW, PhD]

Oh, look...another AAPL comment thread full of the usual ignorant tirades from will and Robcal. Don't you morons have some other stock you'd rather be investing in? Because you clearly don't have the first clue when it comes to the story that is Apple.

[mollytjm]

yes, Apple stock is manipulated day to day...but over the long term, it's made a lot of $ for it's investors and will continue to do so. we all know big $ manipulates stocks. So if you're a nervous day trader, maybe try another profession. if you're a value investor, Apple is a great company and will do well over time.
About Jobs' 'health'. No CEO lives forever...but Apple is no longer a company dependent on one person, the way it was when Jobs returned and rescued it. They made computers. period. they had sold no music or movies, had no music player (ipod), no phone, no gps, and very little software for the macs. do you see how many apps are already available for the 3G phone? developers who didn't use to 'bother' developing anything for Apple, are lining up just like the iphone buyers, to do so. Jobs doesn't develop all this stuff himself. There are so many smart people at Apple these days, that losing Jobs would be an emotional blow, but the company would rally and continue it's great work. Good long term investment here.

[squawk]

Zack, your articles show a systematic pattern of you writing as if you are consistently correct, yet after reading several of your recent articles on AAPL, you have consistently wrong. One day your long, & pump the stock; the next day you're "liquid" & talk down the stock. The other day you claimed the price in AAPL could be explained by "maximum pain." Today, you completely dismiss your "max pain" theory, which couldn't light a candle in glowing furnace, to some other theory.

Give us all a bring & get a real job.

[baycommutez]

I agree, don't whine about manipulation.... if you think a stock has gotten pinned down near a strike price, buy it near the close for a nice pop on Monday.