So Why Did Apple Close at Exactly $500?
Apple’s (NASDAQ:AAPL) finish at exactly $500.00 on Friday, the day call options for the stock expired, may not be rooted in a conspiracy, but it can be explained by strike pinning.
Strike pinning in basically the tendency of a stock’s price to close near the strike price of heavily traded options. It’s not a conspiracy or a deliberate plan, but just an incidental result of hedge rebalancing. When market participants have a larger-than-normal interest on particular strikes, the mere act of re-adjusting their positions as the options expired often leads to the stocks to pin those levels, according to Risk Reversal.com’s Enis Taner.
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“Notice how the $500 level has acted as a magnet over the course of the week,” Taner wrote about Apple in CNBC last week. “Sure, there have been numerous headlines driving the stock up and down in the past week, but why does it keep converging on $500?”
Here’s a glimpse of Apple’s week:
According to Taner, both the “actual effect of options expiration (the 500 strike has more than double the open interest of any other strike) and the anticipated potential pin by other traders” causes the price to keep hovering around or at $500.
It does have a beneficial effect for those who own the stock now. If Apple’s first-quarter earnings on Wednesday turn out to be a positive catalyst and the stock rises, institutional shareholders can potentially earn quite a profit. Thus, while pinning the stock down may have resulted in some small losses then, there is potential for much higher gains in the coming week.
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