Apple Investors Were Pinned on Friday 27 comments
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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.
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This article has 27 comments:
Would like to have some faith...but it is hard...with the brutal tactics that are employed...sigh.
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.
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
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
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.
I added to my position the last couple of minutes of trading and got in near the low.
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.
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.
No one can be serious about faulting Apple Management!!
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.
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.
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.
Give us all a bring & get a real job.