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How credible is the suggestion that specific parties distort price discovery (rig the market) of a given asset by buying/selling corresponding futures contracts or any other derivatives.
Should these position not unwind at some point causing a reversal effect?
Can futures buying/selling distort price discovery?
Yes, that is plausible although will not necessarily be the case. I will focus on put & call options.
Consider the put-call parity, which I rewrite as
$$S+P=C+K*exp(-rt)$$
where S denotes the stock [price], P put, C call, and K the strike price.
Buying enough call options will increase C. If that were the only change in the market (regarding this stock), that would "break" the put-call parity and therefore an arbitrage opportunity would ensue.
Since K is fixed, the only possible changes to offset C's increase are an increase of P and/or of S. An agent who notices C going up is likely to interpret that someone else has information in the sense that S will go up.
Unless that agent also has information in the opposite direction, it would be irrational for him to buy P in his attempt to take advantage of the arbitrage opportunity. Thus, he is likelier to buy S instead of P at least while the put-call parity is restored. Buying S tends increase its price (as is the case with any financial instrument).
Similarly, in the event of C's increase, the agent might set up a strategy that consists of taking a short position on C and hedge it by taking a long position on S (he might have to borrow because C<S, but that is irrelevant to the point). Opening that long position tends to increase S.
