logo
  Join        Login             Stock Quote

Falling Apple's Price Causes Collateral Damage

 January 25, 2013 04:39 PM
 


As the price of Apple has declined from over $700 per share to below $500 per share, it's not just Apple shareholders who are feeling blue.

Wall Street sold a ton of "structured notes" based on the price of Apple stock as a "reference" security. And the frenzy for the notes was greatest in the weeks before Apple's stock price peaked in September.

Under these notes, often called "reverse convertibles", it appears to an investor that he or she is buying a fixed income or bond-like investment which would rise as the price of Apple rises and that the return would mimic or exceed the return of the Apple stock while acting like a bond. Unfortunately, as Apple has cratered in value, so has the value of the Apple based structured notes.

[Related -Google Inc (GOOG): Why Nest Labs Deal Is A Wakeup Call For Apple Inc.?]

Many brokers pushed the structured notes as "safe and guaranteed" ways to benefit from the Apple rise without the risk. Unfortunately, the opposite is true, as Apple has plummeted.

This means that investors who thought they were buying a fixed income product get beaten up Apple shares which they never intended to buy.

One or two reporters have picked up on the dangers such structured notes linked to Apple pose for investors. Back in December, the risk in such Apple-linked notes became apparent, according to Kevin Dugan of Bloomberg.

"More than $241 million of structured notes tied to Apple Inc. face losses after a 27 percent drop in the stock of the world's most valuable company eroded built-in cushions that protect investors," Dugan wrote. "Banks issued 76 US notes linked to Apple stock during the seven weeks starting August 20 when the company was valued at $650 a share or more," Dugan continued. In total, banks issued $1.66 billion of such notes, making Apple the most popular underlying company in such high commission structured products.

[Related -Apple Inc. (NASDAQ:AAPL): Why Gross Margins Will Expand In 2014 and Beyond?]

Some stock jockeys very likely sold the product without explaining to investors the incredible risks they faced. Indeed, many of the securities were created to absorb a 20 percent decline in value before investors are at risk of losing principal or coupon payments, but the stock has dropped more than that already.

And Apple-linked structured products aren't the only culprits in the market. The same holds true for other structured notes which have seen a decline in the past year such as notes based on oil prices or other declining indexes.

Meanwhile, Apple released its earnings Wednesday afternoon, and, despite the company's record revenue and profits, investors were not impressed. There is fear in the market that Apple has peaked. Its share price was down more than 7 percent in after hours trading to $482.45. That's down 30% off its September high and means there is real trouble ahead for clients who thought they were paying a bond linked to Apple but instead are winding up with a tech stock that is cratering.

Investors simply need to avoid these complex, high risk products.

Disclosure: Zamansky & Associates are securities attorneys representing investors in federal and state litigation and arbitration against financial institutions.

iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageXerox Corp. (XRX): An Insider’s $500,000 Insider Buy

Last week was a healthy week of insider buying as 194 companies reported purchase records. The number read on...

article imageQihoo 360 Technology Co Ltd. (QIHU) Q2 Earnings Preview: A Green Monday

Qihoo 360 Technology Co Ltd. (NYSE:QIHU) will report its second quarter 2014 financial results on Monday, read on...

article imageSix Stocks that Could Outperform in the next 90 days

Earlier today, Goldman Sachs put out its list of the 50 stocks that Matter Most. It’s a list of the 50 read on...

article imageFoot Locker, Inc. (FL) Q2 Earnings Preview: Running Past the Street View

Foot Locker, Inc. (NYSE:FL) plans to report financial results for its second quarter ended August 2, 2014 read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.