Manipulation will always be there so...

[Cardboard]

http://tech.fortune.cnn.com/2011/05/12/is-apples-share-price-being-manipulated/

 

I thought this article to be interesting for those of you who own stock options. Of course it is unfair and maybe that someday someone will do something to eliminate it.

 

However, in the meantime, it is probably information that is worth knowing so you can find ways to avoid being screwed by these guys.

 

Cardboard

[beerbaron]

Let's see if I understand correctly.

 

So basically a large fund, sells a bunch of 100$ Covered Calls when the stock is at 90$. At the last day, if the stock begins approaching the strike price I dump my shares until the stock falls below the strike.

 

It's illegal but interesting as your biggest loss is only the difference between your selling price and the close price if you don't succeed. Plus you get the option money as a bonus.

 

Now, guys, think how great that sounds for an arbitrageur. We can't know where the stock will close but we know it will be in a specified range because of those market manipulators...

 

BeerBaron

[ubuy2wron]

It is unlikely the manipulators own ANY of the underlying security. It is more likely entities short both sides of the options and mkt makers buying or selling or shorting and covering the securities interacting with other participants unwinding their long positins in puts and calls. It is a case which occurs over and over again in derivatives where the tail is wagging the dog. Derivatives in all of their forms  may have unintended consequences sometimes the consequences are not unintended.. Without deratives I think the subprime real estate bubble could not have happened and I believe the resultant crash could have also been avoided. Many here have benefited from derivatives because of the timely investments of Prem with CDS. It may interest some that SAC has been mentioned as by far the largest options mkt participant.

[Guest ValueCarl]

There are men with the brains, the will and the conviction to fix this. Men who have been crying like lone wolves in the desert for years, but there are regulators who are too corrupt, too complicit and without sufficient intestinal fortitude to stand up to the Wall Street thugs behind this "fixed game."

 

It's far better to hide behind names of smart men and their math formulas written by Nobel Laureates along with other intellectuals by applying labels, for example, Black-Scholes Model, for the valuation methods in play. Without a doubt, that keeps the rubes believing there may be something "legitimate" to the crimes being applied to taking their money.

 

Otherwise, you can simply blame it on the machines for you see there is hardly any human involvement in pricing securities who by their level of importance, doesn't know where their own money is to be gained or lost.  >:(       

[ubuy2wron]

If one looks at the trading in FFH since the NYSE delisting I think one will find a much reduced volatilty{ come on math geeks you can do this in your sleep and tell me if I am right and if the changes are significant}. At the time of the NYSE delisiting we also dropped the options listing. I had a coworker whose first job with his freshly minted MBA was to work for the options mkt. maker for KO on the CBOE his entire job was to buy and sell KO all day long to keep their positions gamma neutral WHAT EVER THAT MEANS. This of course resulted in them being one of the largest daily participants in the KO mkt if this is not tail wagging dog activity I do not know what is. I am unsure if all of the algo trading and derivative activity helps or hurts the fundamental value investor. It is extremely likely that who ever we are transacting with when we buy or sell our positions is involved in unwinding a derivatives trade or trading a modeled arb opportunity in the price of KO and coffee futures. It would seem to me that their exisits more opportunities for mis priced securities when we are trading against a MR Mkt who is a manic depressive human as opposed to a unemotional HAL 9000.

[Packer16]

But you must remember that HAL 9000 is programmed and controlled by Mr. Market humans.  This can lead to automated behavioral issues.

 

Packer