An Apple Conspiracy? Theories about USD 500′s Close

Shares of Apple (AAPL) closed at 500 on Friday, January 18th. Not 499.99, 500.01 not five point zero zero zero zero dollars on the nose. There is a long history of market watchers after crying conspiracy in Apple stock and for some observers, the number of possible round is too much of a coincidence. “I still have a bridge to sell you if you do not think fixing it in this case,” wrote John Gruber Apple über-blogger.

A choir joined in Twitter:
• Evidence of stock market manipulation
• If the SEC investigation is not appropriate then they should just shut
• Can not imagine all the crazy back-house trading and manipulation that must happen to have $ AAPL ground right at $ 500.00
• I was reminded again why amateurs should not be involved in the financial markets

For some, closing all seems fishy neat 500 more to come so soon after the report comes loose from the weakening demand for the iPhone 5 that sent the company’s stock to levels not seen since February 2012. At 500, the stock fell 28.8 percent from its September high.

Barry Ritholtz, chief executive of Fusion IQ and Bloomberg contributor, felt obliged to address the rumors on his blog: “One emailer is a rarity, two a coincidence, three full blown trend,” Ritholtz wrote in a post knocking down conspiracy theories. People Ritholtz both conspiracy and focused on the fact that January 18 is the option expiration date, in which a very large number of puts and calls come due. Some see that as an incentive for collusion trade, Ritholtz explains that the price trend is expected.

Puts and calls betting on whether the stock goes up or down. They give the owner the right to trade on a specific date at a specified price, known as the strike price. Investors buy them as a form of betting on stocks, and market participants to buy them to hedge against the positions they take on behalf of clients. Open interest-the sum of all outstanding options and futures contracts-especially high in Apple, one of the most widely held stocks traded on the world. Because the choice itself can be traded, their values ​​related to the price of the underlying stock, such as the expiration date approaches, the stock can seem magical interested in prices, good selection round. This phenomenon has a name: clamp option. It has more to do with the behavior of normal hedging of illegal collusion.

“In the days near the end of the option strike price works like a magnet for the price of the underlying asset,” wrote Benjamin Golez, assistant professor of finance at Notre Dame, said in an e-mail. “Since the strike price is a round number (usually 5 or 10 separately), and equity options expire on the third Friday of each month, pinning can thus help us understand why the stock on the third Friday of each month has a tendency to close near the round number.”

“Many, many independent agents, acting completely independently, but with the same purpose, have the effect of pushing the stock to the strike,” said Mike Lipkin, a professor at Columbia University, who has studied the choice of pinning (PDF) and that teach concepts in studies on experimental finance. “Effectively, it is a fight between a normal random movement of stock and securities of the hedgers. They compete with one another.”

Look at the data option chain for Apple, for those betting ends on January 19. (Monthly Options expire on the Saturday following the third Friday in.) There are more than 66,000 contracts at 500, more than twice as much at any other price.

“Human beings are correlative,” said Lipkin. “They tend to see things a pattern. But what they do not see is the probability.”

Market-fixing suspicions were more frequently expressed when stocks lose value. People tend to not complain that the game is rigged when it’s making money for them. Golez noted that on 21 September, as well as the option expiration Friday, Apple closed at 700.095, near all-time high. No claims of market manipulation.

The theory of market manipulation tempting to believe evil. They have the advantages of simplicity, swapping spiderweb of countervailing market power to the man in a room full of smoke. Here is a simpler possibility: Investors are worried that Apple’s growth eventually slowed.

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