Manipulation of Apple's Stock Price Evident in the Options Market?

aapl apr 29th drop

Apple's stock price drop in the closing minutes of trading on April 29th

Fortune reports on an interesting phenomenon being observed in Apple's stock price related to the weekly options market, the trading of rights to purchase stock at a given price at the end of a specified period. According to the report, Apple's stock is consistently seeing suspicious price changes on Fridays as those options are set to expire, activity that makes a significant of traders lose any potential gains as the stock price moves to meet the strike price for that week's options. In many cases, that activity serves to depress the overall stock price, thereby also negatively impacting regular traders as well.

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 more [than] $350 apiece (the difference between the price of the stock and the so-called "strike price" of the option times 100).

Then, in an extraordinary burst of trading -- exacerbated by the rebalancing of the NASDAQ-100 scheduled for the following Monday -- more than 15 million shares changed hands and the stock dropped below the $350 strike price just before the closing bell. Result: The value of those calls disappeared like a puff of smoke.

Fortune went back and charted the daily closing prices for Apple stock over the past eight weeks, comparing the Friday closes to the "max pain" price at which options on both sides of the equation (puts and calls) have the least value in aggregate. Throughout the time period, Apple's stock consistently moved toward the max pain point on each Friday, sometimes over a period of only minutes as trading came to a close for the week.

While the phenomenon is not new and not unique to Apple, the reasons for it are not entirely clear. Some have argued that normal hedging activity is responsible for the drifts in stock price, but scientific studies have shown that such stock price behavior would not be accounted for by simple hedging and is thus indicative of stock price manipulation, which is illegal under U.S. securities law.

Apple is obviously one of the most closely watched stocks these days, and with the second-largest market capitalization in the U.S. markets has the potential to significantly influence trading. And so an apparently consistent manipulation of Apple's stock price makes for an interesting story, even if it is not yet clear who is responsible for the activity and how it is being accomplished.

Top Rated Comments

Consultant Avatar
133 months ago
Not the Options thing. Not again... :rolleyes:

Oh, Apple, learn how to play nicely in the Stock Market.
What are you talking about? If you didn't read the article why comment?

It's about stock traders manipulating the market. Not Apple "playing nicely."
Score: 14 Votes (Like | Disagree)
houdinize Avatar
133 months ago
so I understand maybe three words of that.
Score: 10 Votes (Like | Disagree)
Eddyisgreat Avatar
133 months ago
Wait a minute so you're telling me those really high speed servers owned by private financial companies who are conveniently colocated in same data center as the NYSE ARE being used to game the system? who woulda thunk!?
Score: 10 Votes (Like | Disagree)
LagunaSol Avatar
133 months ago
What happened to long-term investing in companies you believe in?

The market manipulating dirtbags in the minute-by-minute trading game make it difficult for those of us investing the old-fashioned (honest) way. :mad:
Score: 8 Votes (Like | Disagree)
jtara Avatar
133 months ago
This is pretty nonsensical. Fortune should know better. This is a natural phenomena of option pricing. Of COURSE the market is going to drive the stock to the price where the maximum number of options will expire worthless.

Traders (as opposed to those using options for legitimate hedging reasons) don't want to hold options to expiration. If a near-the-money call option is looking like it is going to expire with a value of, say, $1, then the holder of those options is going to sell them. Ultimately, they are going to be involved in a conversion, where the buyer exercises the call (acquiring the stock at the fixed, option price) and then immediately sells the stock. Of course this sale is going to help depress the stock price.

Expiring puts that are in the money are going to help force the stock price up.

The two opposing forces will try to force the stock price to the "max pain" price, which will depend of the overall balance of open calls/puts.

The only fix that I can think of is continuous expiration, rather than a fixed weekly expiration day. Wasn't aware that options went to weekly expiration, and assume that this was meant as a move toward continuous expiration which perhaps back-fired, because it now creates the phenomena weekly rather than monthly.

It's normal *trading* activity, not normal *hedging* activity that is going to force the price to max pain. Hedgers hold options to expiration. Traders don't. The extent to which max pain comes into play will in part be determined by how many options are held by traders as opposed to hedgers.
Score: 5 Votes (Like | Disagree)
firewood Avatar
133 months ago
This alone would fully explain the behavior of the stock price.

Only for 1 of the 8 days analyzed. When something happens too many times in a row, the odds that it is some random effect get much smaller.
Score: 5 Votes (Like | Disagree)

Top Stories

Pro Display XDR Yella

Apple Working on External Display With Built-In A13 Chip

Friday July 23, 2021 9:37 am PDT by
Apple is developing an external display that includes an A13 chip with Neural Engine, according to a new rumor from 9to5Mac. The A13 chip with Neural Engine would presumably serve as an eGPU, though details are light at this time. Having a CPU/GPU built into the external display could help Macs deliver high-resolution graphics without using all the resources of the computer's internal chip....
iOS 14 on iPhone feature emergency

Apple Releases iOS and iPadOS 14.7.1 With Fix for Touch ID Apple Watch Bug

Monday July 26, 2021 9:48 am PDT by
Apple today released iOS and iPadOS 14.7.1, minor bug fix updates that come just a week after the release of iOS 14.7, software that introduced new Apple Card features and support for the MagSafe Battery Pack. The iOS and iPadOS 14.7.1 updates can be downloaded for free and the software is available on all eligible devices over-the-air in the Settings app. To access the new software, go to...
discount m1 macbook yellow

Deals: Shop Record Low Prices Across Apple's Full MacBook Pro and MacBook Air Lineup (Up to $499 Off)

Friday July 23, 2021 8:23 am PDT by
Apple's MacBook Pro and MacBook Air lineup is seeing all-time low discounts across the board today, including the 2019 16-inch MacBook Pro, 2020 13-inch MacBook Air, and 2020 13-inch MacBook Pro. Note: MacRumors is an affiliate partner with some of these vendors. When you click a link and make a purchase, we may receive a small payment, which helps us keep the site running. 13-Inch M1...
iphone 12 pro gold

Report: iPhone 14 Pro Models to Feature Tough Titanium Alloy Chassis

Monday July 26, 2021 1:12 am PDT by
Next year's "iPhone 14" series is expected to feature high-end models with a new titanium alloy chassis design, claims a new investors report by JP Morgan Chase. According to the report, the use of titanium alloy will be one of the biggest changes to the case design in the 2022 iPhone series, and Foxconn will be the exclusive manufacturer of the titanium frames for the high-end models....
FaceID iMac REREREREMIX

Gurman: Face ID on the Mac Coming Within a 'Couple of Years'

Sunday July 25, 2021 7:09 am PDT by
Apple plans to bring Face ID to the Mac within the next "couple of years," respected Bloomberg journalist Mark Gurman said today in the latest edition of his Power On newsletter. In the newsletter, Gurman says that he believes Apple's ultimate goal is to shift all of its products to Face ID, including the lower-end iPhones such as the iPhone SE and the iPad Air, which feature Touch ID....
airpods 3 gizmochina Feature

AirPods 3 Rumored to Launch Alongside iPhone 13 at Expected September Event

Friday July 23, 2021 12:54 am PDT by
The third-generation AirPods will likely launch at the same event revealing Apple's upcoming iPhone 13 lineup, according to a report from DigiTimes, which makes the claim citing sources familiar with the matter. The report as a whole echoes previous reporting that production of the third-generation AirPods will kickstart in August, meaning a launch shortly after can be easily expected. DigiTi...
imac with accessories

Larger Redesigned High-End iMac Rumored to Launch Next Year

Monday July 26, 2021 3:45 am PDT by
Apple's larger redesigned iMac will arrive sometime in 2022 rather than later this year, according to the leaker known as "Dylandkt." On Twitter, Dylandkt claimed that Apple's "high end iMac" is not expected to release in the fourth quarter of 2021 alongside Apple's "M1X Macs" – a reference to Apple's redesigned MacBook Pro models – because "Apple simply does not want their devices to...
apple bitcoin hack

Is Apple Really Buying Bitcoin?

Monday July 26, 2021 3:07 am PDT by
A large number of websites and posts on social media are stoking rumors that Apple has purchased $2.5 billion worth of bitcoin in the company's first move into cryptocurrency, but is there any validity to the claims? Many people are citing the fact that Apple was looking for a Business Development Manager with experience in alternative payments, including cryptocurrency, earlier this year as ...
apple mac business page

Apple Shares 11 Reasons Why Business Users Should Choose Macs

Monday July 26, 2021 11:35 am PDT by
Apple today updated its Apple at Work website with a new section dedicated to the Mac, which offers up 11 reasons why "Mac means business." On the webpage, Apple highlights the M1 chip as the number one reason why business users should choose a Mac, offering up an M1 overview [PDF] that explains the benefits of the M1 chip. The information isn't new, but it does provide a look at all of...
magsafe battery pack iphone 12 mini

Top Stories: Hands-On With MagSafe Battery Pack, iPhone 13 Always-On Display?

Saturday July 24, 2021 6:00 am PDT by
Apple's new MagSafe Battery Pack is now available, and we went hands-on this week for some early impressions of the new accessory to get more battery life out of Apple's iPhone 12 lineup. Subscribe to the MacRumors YouTube channel for more videos. This week also saw a number of rumors about the upcoming redesigned MacBook Pro models, the iPhone 13 lineup, the next-generation iPad mini, a new...