(Bloomberg — 2011-05-12) — [...] Sprott, whose hedge funds and mutual funds mostly invest in energy and metals, said silver was “manipulated down” last week after it fell $6 in 13 minutes on a Sunday evening when trading was light. [...]Basically, Sprott thinks it's normal for silver to climb $3-4 a day, for 10 days in a row or so; or to double in price in 6 weeks, or triple in 6 months, but if it falls $6 within a single trading session, it's sign of manipulation? Well, it was either a manipulation on the way UP and on the way DOWN, or it's not a manipulation at all. You can't just put claim gains as if you were wining thanks to your claims, and dismiss any loss and call for manipulation...
Fortune magazine reports:
It was 3:48 p.m. on Friday April 29 and traders who had purchased Apple (AAPL) April 29 $350 "calls" -- options that gave them the right to buy Apple shares in blocks of 100 for $350 per share -- were sitting pretty. The stock was trading around $353.50 and those calls were worth more $350 apiece (the difference between the price of the stock and the so-called "strike price" of the option times 100).Apple Stock manipulated because it dropped $2-3 in a few minutes? Well, just to debunk this silly theory, let me tell you that anybody who has been heavily trading options, or who has studied their pricing behaviour in real markets know that this pegging at expirations day is very real, and volatility very high. Some people make a living of this, and have written books about strategies to apply during those very specific times. I would highly recommend Jeff Augen's Trading Options at Expiration: Strategies and Models for Winning the Endgame.
Then, in an extraordinary burst of trading -- exacerbated by the rebalancing of the NASDAQ-100 scheduled for the following Monday -- more than 15 million shares changed hands and the stock dropped below the $350 strike price just before the closing bell. Result: The value of those calls disappeared like a puff of smoke.
How is this manipulation being accomplished? Who is doing it? And why aren't they being punished? Those are very good questions, which we'll try to address in subsequent articles.
If you add index rebalancing of a major index such as the Nasdaq on top of it, you end up with very high and unusual activity. For the records, I think Apple used to account for 20% of the whole index. This is enormous.