When Investors Act Like Sports Fans
If you have experienced success as an AAPL long, it has very little to do with emotion. Certainly, some level of emotion kept you in the stock during its many somewhat scary dives over the last year or two.
I am not sure how much I associate sticking with long-term conviction during near-term, noise-induced weakness with emotion, though; instead, when fundamentals do not change, it's relatively boring, smart investing.
You have zero to do with the direction of a company or the trajectory of its stock. Your emotion drives absolutely nothing. All it can do is help you lose money somewhere along the line.
Thinking that your emotion plays any sort of role is akin to the belief that the louder you yell at your television and the tighter you clench your fists and cross your fingers, the better the chances are that your hockey team will score the game-winning goal in sudden-death overtime.
I bought AAPL for an average of about $286. I sold it for around $350. I rode an Apple January 2014 $600 call to considerable profits earlier this year.
When I sold the stock, emotion certainly played a role. I left money on the table, but I did not lose any. And that's really the key. I will take emotion shaking me out of a position over keeping me in one any day of the week. For every one that ends up running, more than a few would have ended up producing losses. On the option trade, I made the correct choice. I had a big profit and I took it. I moved on.
If I owned the stock today and found myself getting all caught up in the euphoria, I would take my wildest price target, knock about $150 off it and sell a covered call at that strike.
So, today, if I were long AAPL and thought it was headed to $750 by the end of the year, I would immediately sell AAPL May $600 calls against my position.
If my shares got called away, I would knock about $20 off of AAPL's market price in that moment and sell the closest-in, cash-secured put at that strike. If they did not get called away, at May expiration I would write a June covered call at a strike about $100-$150 below my latest ambitious price target.
If somebody is willing to pay you thousands to risk giving up your shares or the same to sell you shares on a dip, why not take them up on the offer?
I consider this strategy a prudent and proper balance. It beats unbridled and fanatical passion or the fear of closing a position only to regret the decision later.
At the time of publication, Pendola didn't have any positions in stocks mentioned.