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AAPL hits nine-month low; call options to blame?

updated 02:00 am EST, Wed January 16, 2013

Institutional buyers, others may have a fix in against AAPL

In the wake of considerable media backlash over a highly-questionable Wall Street Journal story claiming that Apple had cut back orders on iPhone parts to "half" previous levels -- a claim now clearly shown to be inaccurate -- AAPL has dropped to its lowest price in nine months, closing on Tuesday at $485.92 (though it is up to almost $490 in after-hours trading). Evidence has now emerged that some investors may be deliberately trying to suppress the stock.

Disturbingly, the market seems to be quite prone to sometimes-blatant manipulation with regards to Apple -- there is a distinct lack of any hard evidence that anything is wrong either internally or externally with the company. Demand for its flagship product is reported widely to be "robust," and even consensus numbers by professional and indie analysts indicate that Apple is likely to have the best quarter in its history when it reports numbers for the holiday quarter on January 23.

Though it is true that competition has gotten more intense between (primarily) Apple and Samsung in the smartphone market, and a handful of other competitors in the tablet arena, there is nothing to suggest that Apple is not still making (by far) the largest share of profits in the mobile industry, or that its products aren't selling as well -- or better -- than ever. Wall Street expectations for iPhone sales during the holiday quarter are in the 47M range, and half that much for iPads, both record numbers with double-digit growth. Even if Apple manages to miss those targets, sales will be up significantly from both the previous quarter and the year-ago quarter by at least 20 percent.

The WSJ article that appears to have triggered the latest steep drops in AAPL were apparently based on completely made-up numbers of parts attributed to unnamed sources in the Japanese stock market. The article has since been lambasted in other mainstream business magazines, including The New York Times and Forbes. While there is still the possibility of sales or production erosion at Apple, press reports on the matter have taken on a "whisper campaign" quality with no real evidence behind them, and an over-reliance on speculative quotes from pundits and analysts.

A previous press release, also widely reported, quoted a study that claimed that the teen demographic was disenchanted with the iPhone and hot for Microsoft's Surface tablet and Galaxy phones, the former notion completely unsupported by sales figures or reality. Clearly-influenced "surveys" and suspiciously-timed "reports" aimed at taking the shine off the single most popular brand of smartphone and tablet have expanded greatly in just the past couple of weeks, egging on a price drop in the stock that has accelerated from a slow correction-type decline over the previous three months.

The charges of manipulation don't just come from Apple's fans and customers -- stories about Apple regaining US smartphone share over the combined Android field of competitors are buried beside claims of new (relatively) high sales records for Windows Phones and Samsung's Galaxy line, leading to rises in the stock price of those companies -- even though the latter took nearly five times times (and several model revisions) as long to sell the same number of phones Apple typically sells in six months.

The incredibly poor sales of Microsoft's Surface tablet are glossed over, likewise giving MSFT a slight lift in the new year. The decision by Samsung not to even offer RT-based tablets in the US did not cause any drop in either Samsung or Microsoft's stock, and the sales totals by even the most successful vendors of Windows Phone 8 and Android models pale in comparison to Apple's totals until taken as one aggregate number.

There was even a recent story about HTC cutting component orders for its products, and Microsoft selling only one million Surface units -- about half as many as expected -- over the holidays, but did the stock plummet? No, both have steadily gone up (albeit slowly) since November. Meanwhile, no clear explanation of why that would be has yet emerged.

An analysis of call options from the summer that are coming due in the next few days by Seeking Alpha may reveal some answers, possibly including factors that are illegally -- but deliberately -- attempting to suppress AAPL price temporarily, until around the time of the company's earnings announcements. As it turns out, billions of dollars are at stake in some 60,000 call-option "bets" that AAPL will be in the $550 to $700 or higher price range on January 19, a now-remote possibility given the increasing downward pressure on the stock that has ramped up over the last two weeks.

If the options expire as worthless (AAPL is below the strike price), then institutional money managers who wrote the call options last summer and bought the common stock (at its then range of $600 or so six months ago) to cover the bet will save at least $600 million in payouts. On the other hand, if the stock should rise back up significantly above $600 after January 19 -- say just before or shortly after Apple announces its earnings -- they keep the money they made selling the call option and any capital gains on the stock they are currently holding. The sum total amount of difference would be in the billions of dollars in net gain overall.

If forces are conspiring to suppress the value of Apple stock, the 60,000 call options that expire on January 19 will cause a strong rise in the price as the large-volume buyers grab more stock in an effort to ride presumed good news back up to pre-October levels. The theory will prove itself (or not) early next week, and if the prediction is correct and events unfold as described, a case could be made for an SEC investigation into some of the larger institutional buyers of AAPL and their motivation to influence the stock's behavior.

Other possibilities that similar support manipulation charges including the possibility that the suppression was aimed at getting nervous smaller investors to dump the stock so that larger, institutional buyers can gather more at lower prices, which is also illegal. What happens to AAPL over the next two weeks will likely tell the tale. [Chart via SeekingAlpha]



By Electronista Staff
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  1. Sebastien

    Registered User

    Joined: 04-29-00

    So, if the original report was so inaccurate, why did MacNN publish it without proper verification, thereby further spreading the misinformation :rolleyes:

    Some news site you guys are!

  1. efithian

    Fresh-Faced Recruit

    Joined: 04-21-04

    Everyone knows this, but it is good to see it in print. Perhaps some regulation is needed.

  1. blahblahbber

    Banned

    Joined: 02-01-05

    LOW AAPL. Just as I predicted this year....

  1. cancerman

    Fresh-Faced Recruit

    Joined: 09-29-04

    The fruit should seize the opportunity now and step up their buy back program. Once the numbers come out from the holiday quarter the stock is going to soar.

  1. Flying Meat

    Dedicated MacNNer

    Joined: 01-25-07

    uh oh! they're onto us. make the stock go back up. QUICKLY!!!

  1. chas_m

    MacNN Staff

    Joined: 08-04-01

    Originally Posted by SebastienView Post

    So, if the original report was so inaccurate, why did MacNN publish it without proper verification, thereby further spreading the misinformation :rolleyes:

    Some news site you guys are!



    You didn't actually read the first article MacNN published on this, did you?

    The first one clearly said "this is what the WSJ is saying." It was a significant report by a major news source, and the site reported on the article. The WSJ apparently thought they had a credible source.

    A second article casting doubt on the WSJ report appeared a few hours later, citing various sources that contradicted the claims made by the WSJ, and also noted that the WSJ itself had retracted (more like "flushed down the memory hole" really) a key premise for the rest of its report once they discovered it was not accurate.

    I don't know if you're new to the concept of news or what, but this is how journalism works: initial reports (about anything) draw information from available sources, which are sometimes wrong (or exaggerated). Later reports clarify, correct and generally analyse the original report for flaws.

    I'm not letting the WSJ off the hook here; they misled readers and other outlets by backing this sloppy report with their credibility, and it has taken a serious hit as a result. But if you start with bad info, you end up with bad info. GIGO as the computer people say. Luckily, there is this thing called "competition" which checks your work and corrects it. WSJ got schooled by the NYT and other sources, and MacNN duly reported on that as well.

    Both of MacNN's reports on this topic were completely accurate. I'm beginning to think you commented on this one without reading it, such is the depth of the ignorance in your comment.

  1. Sebastien

    Registered User

    Joined: 04-29-00

    Originally Posted by chas_mView Post


    The first one clearly said "this is what the WSJ is saying." It was a significant report by a major news source, and the site reported on the article. The WSJ apparently thought they had a credible source.

    And that's supposed to excuse MacNN for redistributing misinformation? :rolleyes::rolleyes::rolleyes::rolleyes::rolleyes::rolleyes::rolleyes::rolleyes::rolleyes::rolleyes::rolleyes::rolleyes::rolleyes:

  1. chas_m

    MacNN Staff

    Joined: 08-04-01

    Originally Posted by SebastienView Post

    And that's supposed to excuse MacNN for redistributing misinformation?



    Yes, actually. If your source is reputable but feeds you bad information, how do you know this until later? Are you just not thinking today or something? :stick:

    Remember when the Sandy Hook school shooting happened? EVERY news organization got MANY details of that story wrong, because they were quoting people at the scene who were often confused or "in the moment" and didn't have the full data. LATER, they corrected the story's details (little things like number of the dead, name of the gunman, etc) as more data became available. THAT IS HOW NEWS WORKS. Evidently you've had very little contact with news in your life, or for that matter science, because that is also how IT works.

    When a story happens (not necessarily breaking, perhaps something like a strong allegation), YOU REPORT that it happened. If, LATER ON, you find additional evidence that contradicts or clarifies what you had originally, YOU REPORT THAT TOO. If you're just now discovering that most of the media works like this -- indeed LIFE works like this -- you should consider suing the people who were in charge of your education.

    Of course this doesn't apply to Faux Noise watchers, but for most everyone else additional new information is used to correct and clarify earlier information. Must be nice if you're one of those people who decides on first notice that you know everything there is to know about a story ... too bad the real world doesn't work like that ...

  1. Chongo

    Addicted to MacNN

    Joined: 08-16-07

    CNET is reporting Al Gore just scored big by exercising his option and buying Apple @$7.475 a share, when it was selling just under $500 a share. Gore's $441,000 investment instantly turned into $29,000,000.

    Al Gore exercises Apple stock options worth $29 million | Politics and Law - CNET News

  1. Juliadabronx

    Fresh-Faced Recruit

    Joined: 01-20-13

    Best explanation of all!

    Thank you for a very clear breakdown of this (to me, blatantly unethical) iteration of what can be construed as AAPL share price manipulation. I am not even an amateur in options trading, so most of what I read all week might as well have been Sanskrit. This helps so much. ;)

  1. salad

    Fresh-Faced Recruit

    Joined: 01-20-13

    Just wanted to point out that apple's stock closed at EXACTLY 500.00 on friday, options expiration day. What are the odds of that happening?

  1. Sebastien

    Registered User

    Joined: 04-29-00

    Originally Posted by chas_mView Post

    If your source is reputable but feeds you bad information, how do you know this until later?

    Uh, by verifying it yourself? :rolleyes::rolleyes::rolleyes:

  1. Spheric Harlot

    Clinically Insane

    Joined: 11-07-99

    So, by sending a news correspondent there and checking?

    FWIW, standard practice in respectable newsrooms is to NOT report something as news until it has been corroborated by at least one other independent source. Well, at least it used to be.

  1. Sebastien

    Registered User

    Joined: 04-29-00

    Originally Posted by Spheric HarlotView Post

    So, by sending a news correspondent there and checking?

    That's a great idea! ....and what real news sites do.

  1. Spheric Harlot

    Clinically Insane

    Joined: 11-07-99

    Originally Posted by SebastienView Post

    That's a great idea! ....and what real news sites do.



    No. That's what million-dollar news corporations and news AGENCIES do.

    Most news papers and sites have NEVER been able to afford their own correspondents beyond local coverage.

    News site/radio/TV editors read/watch news feeds from reputable agencies (reuters, AP, DPA, AFP, etc.) and run those stories the editors deem relevant, once they have been verified by two independent sources/agencies.

  1. Sebastien

    Registered User

    Joined: 04-29-00

    Then all they do is repeat (mis)information, and really shouldn't call themselves a 'News' site (ie. 'Mac News Network')

  1. Spheric Harlot

    Clinically Insane

    Joined: 11-07-99

    Originally Posted by SebastienView Post

    Then all they do is repeat (mis)information, and really shouldn't call themselves a 'News' site (ie. 'Mac News Network')



    That is why stories are verified through two INDEPENDENT sources. When there are conflicting accounts, but the subject is urgent to warrant a breaking news item, the report is qualified as coming from "unverified sources".

    That is how newsrooms work, and always HAVE worked.
    Disclaimer: I used to work at a public radio news station. Additionally, the different agencies vary in reliability. Important bulletins that came through Reuters, for example, were usually trustworthy (because they tend to check their sources). AFP, in contrast, was notorious for occasionally jumping the gun and getting numbers wrong in their haste to be first and get credited for the story (in print, the agency is always mentioned at the end or beginning of the story, usually in parentheses).

  1. Sebastien

    Registered User

    Joined: 04-29-00

    Originally Posted by Spheric HarlotView Post

    .... was notorious for occasionally jumping the gun and getting numbers wrong in their haste to be first and get credited for the story

    Kinda like MacNN does?

  1. Spheric Harlot

    Clinically Insane

    Joined: 11-07-99

    Originally Posted by SebastienView Post

    Kinda like MacNN does?



    I pointed out that you had no clue how a reputable news business works.

    Disagreeing with your suggested "solution" doesn't mean I disagree with your diagnosis of the problem. :)

  1. blahblahbber

    Banned

    Joined: 02-01-05

    Originally Posted by SebastienView Post

    Then all they do is repeat (mis)information, and really shouldn't call themselves a 'News' site (ie. 'Mac News Network')



    I think chas_m is a shill for crApple. Anyone else think so?? I mean, it's obvious crApple goes to great lengths to protect their image. I can tell that their own employees review their products & services. THIS COMPANY IS GETTING TOO FAKE TOO OBVIOUS and this is getting TOO OLD

  1. Sebastien

    Registered User

    Joined: 04-29-00

    Originally Posted by blahblahbberView Post

    I think chas_m is a shill for crApple. Anyone else think so?? I mean, it's obvious crApple goes to great lengths to protect their image. I can tell that their own employees review their products & services. THIS COMPANY IS GETTING TOO FAKE TOO OBVIOUS and this is getting TOO OLD



    +1.

  1. cgc

    Professional Poster

    Joined: 03-25-03

    Might be a good time to buy some Apple stock since it's on sale ATM.

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