What’s to Blame for Apple’s Crazy Fall?

Apple’s (NASDAQ:AAPL) rise last year was rapid and steep. The stock gained more than 31 percent in the full calendar year, but in the nine and a half months between January and mid-September, it rose upward of 73 percent. But once it started falling from its peak of $702.10 on September 19, the fall was quick as well: Shares dropped just a little under 25 percent from then until the end of December. And the downswing is unchecked: This year, the stock has already slipped more than 17 percent.

According to TD Ameritrade’s chief derivatives strategist J.J. Kinahan, Apple’s rapid and aggressive fall can be explained by the increased pair trading in its stock.

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Pair trades are usually done by short-term market participants and involve betting that one stock will go higher while short-selling a second stock expected to go lower. It has worked perfectly with Apple over the past five months as the iPhone maker’s stock fell while the rest of the market surged higher.

“Apple now allows you to use it as a proxy for the tech industry overall in a way that’s more affordable,” Kinahan told CNBC. “Apple was in a league of its own. There was nothing that you traded against Apple. What this has done is made Apple just another stock — a great index stock of the tech industry. People can now use Apple in a pairs trade. Before, everyone was afraid to do it because Apple went straight up.”

But the days of those crazy moves up are past. Kinahan explained that Apple’s shares could find support in the $425-$450 range, though they will possibly remain a trading vehicle. “The fear of the hyperbolic move to the upside has been taken away,” he said. “So you’re not going to have it go up $50 unexpectedly because the whole world is buying it for no apparent reason. It’s trading for a reason now.”

Apple is being used as a proxy in a lot of other things, he told CNBC. “At least every other week you’re either a buyer or seller of it, a lot of it depending on what the rest your stock (portfolio) is.”

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