Friday, May 13, 2011
Posted by Jeff Campbell in "Apple News" @ 08:59 AM
"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 $350 apiece (the difference between the price of the stock and the so-called "strike price" of the option times 100)."
What is happening is that just before they can exercise these calls, there is a flurry of trading, which in turn drops the share price below the target price of the call. What this means is they can't exercise the calls and they basically become worthless. The phenomena is called "Max Pain" and what is boils down to, according to the website Maxpa.in, is that it hits the "price that causes the highest dollar value of options to expire worthless, causing everyone to go home in financial pain," or maximum pain if you will. Manipulating stock like this is illegal and since, according to the article, it's been happening frequently to Apple, it does lead one to believe there may be some manipulation going on with the stock. An interesting read, and I'm curious to see if it's all conjecture or if there are legs to this story.