So if we are to believe that the options market is controlling the price what will happen in the next few months?
The maxpain levels for the large option weeks for Feb-July is about 540. From July-Dec there are no other large option weeks. In my first post I calculated that the option writers would have to pay about $11 Billion more if the price jumped from 530 to 700.
But does this mean that Apple will not reach 600-700 this year? Yes, paying out $11 billion for options will hurt the option writers. But the key is they are hedging their option bets. If the stock goes to 600-700 they will have to pay significant money but if they hold the stock those losses will be offset by massive gains in stock price.
I think right now the institutions hold over 75% of the common shares. I think a ton of private investors got weak hands or locked in gains and sold. That is EXACTLY what the big boys want. They want control of the shares. The last data on yahoo finance had institutional ownership at 68%. Google is 84% institutionally owned. The big boys want to own 75-80% of the shares to really control price action.
So why would the big boys want the stock to go to 600-700? I'm assuming that the institutions own 75% of the shares:
939 million shares x 75% = 705 million shares
705 million shares x $200 (stock appreciation from 450 to 650) = 141 Billion
The big boys will gladly pay the $11 billion in options to capture 141 Billion in stock appreciation
So now lets back track. What was the best possible scenario for the big boys?
Option 1: Apple explodes from 700-900 from Sept2012-Sept2013 - Yes they would make about $100 Billion in stock appreciation but they would have to pay out a huge chunk in options. I think it would be close to $50 billion. Also they would continue to hold only about 65% of the shares. The private investor loves to buy when a stock is hot. Thus they would have even less control of the stock. Overall return: C
Option 2: Apple stay steady at 650-700 from Sept2012-Sept 2013. Big boys would make no money in stock appreciation. But they would have to pay a significant amount of options payments about $20 billion. Private investors will hold the stock and institutional ownership will still be at a relatively low 68% - thus not full control of the stock. Overall return: D
Option 3: Apple gets demolished from 700-450 from Sept 2012-Sept2013. Big boys would avoid the huge option payouts. They would make significant money but it would be offset by the massive losses to stock they own. They would gain significant ownership percentage since many of the private investors could give up and sell. Overall return: C
Option 4: Apple gets demolished from 700-450 from Sept2012-Feb2013. But it slowly goes back up to 650 to close 2013. Big boys would have to pay significant options. But if they let the price slowly creep up they can minimize those payouts to under $10 billion. The massive fall also would cause a ton of private investors to sell. Institutional ownership will go up to 70-75% = control. If the stock goes up $200 the stock appreciation for the big boys will reach over $100 billion. They get their cake and eat it. Overall return: A+
My belief is that the big boys are playing Option 4. As long as Apple does not fall of the face of the earth they will be pumping up this stock big time in the second half of this year. The money is just too big to ignore. And think about this: If Apple was really a dying company do think the big boys would have given the private investors MONTHS OF ADVANCE NOTICE? People were talking about Apple's doom since November. No way. They would have continued to pump up the stock while they try to sell at the highest possible price to private investors.
So looking at options payouts here is my guess at stock price for the next few months:
After July is when the stock could possible make a run to 600-700.
Edited by sog35 - 2/6/13 at 6:25am