Is Apple’s share price being manipulated?

The recent fall in Apple’s stock price had many technology commentators fearing that Apple’s bubble had burst and that the love affair with the iPhone and ‘all things i’ might be over. From its peak in late summer 2012, Apple’s stock has dropped by about 30 per cent. But when it comes to the financial markets, controlled and manipulated as they are by very clever people who’s sole interest is making money, nothing is ever simple.

Joe Springer on the Seeking Alpha financial blog wrote an interesting thesis back in November about other reasons behind Apple’s stock price performance – reasons other than the general well-being of the company. At the time, we overlooked it, as did most of the industry. But over the weekend it was picked up and flagged by bloggers, including Jon Gruber on daring Fireball.

Joe’s original article, written on November 13, was entitled “Buy Apple On January 18”. He advocated that those wishing to buy Apple stock should wait until for that date, because the markets were being manipulated by option traders to create an artificial movement in Apple’s price that could be exploited for serious profit.

He cited his colleague Paulo Santos’ observation that Apple’s summer stock price surge happened at the same time as an large amount of “long options were being written”. The surge in Apple’s share price looked to have started in the options market and carried over to the common stock market as they covered their bets. Most of these long options – and there were hundreds of thousands of them – were due to expire on Saturday January 19, 2013. The call option range was $550 to $800.

The logic then runs that the institutional money managers that wrote those call options and bought common stock to cover will make a lot of money if those options expire worthless and then Apple’s price picks up and climbs after January 19. The call writers get the capital gain from the common stock they covered with, plus the entire amount for which they sold the option. According to Joe, this represents “billions of dollars for a two month delay in an Apple surge”.

Yes, it’s complicated, and it remains speculative. But the gist of it is clear – if you control a serious money fund, and know what you’re doing, then by suppressing the value of a stock for a set period you can create extra profit for yourself and your fund members. To heck with how this impacts the company in question, that’s not important to you – making money is what’s it’s about.

Finally, Joe advised back in November that prospective Apple stock buyers wait until the end of the day on Friday, January 18th before buying stock. Interestingly, Apple’s stock price closed last Friday at $500.00. That’s down from its high of $702.10 on September 19, 2012. That’s a drop of about 30 per cent. Can that purely be down to market manipulation? Others disagree with the analysis, citing more fundamental concerns about Apple’s performance. Even the Wall Street Journal blamed the fall on “weak demand”, although bloggers are raising questions about its analysis.

Apple’s results are out on Wednesday, so we’ll soon discover the true state of the company’s business performance this past quarter. And keep an eye on the stock price – to see which direction it heads over the next couple of days…