Apple Investors Becoming Too Emotional?

| About: Apple Inc. (AAPL)

In an article published this morning, I sounded a long-term alarm on Apple (NASDAQ:AAPL). There's no doubt that Tim Cook made an error that could not only change the game internally at his company, but surfaces a reality many Apple fans prefer to ignore. Life, as you knew it, simply does not exist after Steve Jobs.

After flirting with being different, Cook proved that he's not. He's just another MBA, whose mind runs in a space Jobs considered populated by "bozos." If we are to give Steve Jobs a lion's share, if not all, of the credit for what Apple has become and what sits in its certainly impressive pipeline, we cannot discount the impact of his absence. You do not replace Steve Jobs. Instead, you do your best to achieve a not-too-hard landing when his posthumous releases run out.

All of that said, I have few concerns about the short-term at Apple or in AAPL:

First, this does not spell short- or even near-to-mid-term doom. It's likely that AAPL ends the year above, possibly well above, $600 on what should be an extended string of solid earnings reports. While I would not call you crazy for selling the stock now, I would consider somebody who holds or buys at these levels perfectly sane and logical.

I am not a reactionary investor. By that I mean I would never make the hasty, knee-jerk decision to call AAPL a sell on the basis of something that will have an indirect impact, especially when the company will not feel the impact, most likely for some time.

From here, we're left with the question that always matters most to investors - how do you play it?

If you have profits in AAPL, there's no question in my mind, you should take at least some of them off of the table at this point. Not all. Just some. That might mean only 25% to 50%. It all depends on your unique and actual financial situation. But, you can only assess that after you strip away all of the emotion that you have built up over the course of being an AAPL long.

Make no mistake about it, Apple, for many investors, has entered Research in Motion (RIMM) and Sirius XM (NASDAQ:SIRI) territory. Of course, the one big distinction is that Apple is superior to both companies on every count you can imagine. This, however, does not change the fact that loads of investors find themselves emotionally attached to the company and stock in a way increasingly like the RIMM and SIRI crowds. And that's dangerous.

Just take five minutes to scan the comments' sections of AAPL articles on Seeking Alpha. You get the sense that some investors feel like they are a part of something at Apple. It's the same type of misguided illusion that prompts otherwise sane people to use the word "we" when speaking of their favorite sports team or spend the day after a loss in a state of depression.

You invested in AAPL, or any other stock for that matter, to make money, not to become a part of something. Once you see yourself displaying the psychological characteristics of a group or an "us against them" attitude, it's time to, at the very least, rethink your position.

Again, don't overreact (that's one of the "psychological characteristics"). I love Apple. Yes, I do. Unabashedly. That's one reason why I am so into the topic. I am not sure America has ever produced a stronger, more game-changing company. And, without question, a vast majority of the folks who comment on (and read) AAPL articles would likely score higher on tests of cognitive ability and creative capacity than your standard RIMM or SIRI warrior. In other words, if you admire Apple, I am on your side. I speak your language. I catch your drift.

At the same time, I have had my share of big gainers evaporate into thin air over the course of a New York Minute that actually lasted several weeks or months because I became emotionally invested in the position. In other words, there's never anything wrong with splashing some cold water on your face and taking profits. Sure, you risk leaving money on the table, but consider the bigger picture. What about the position you let ride only to see it implode as you stand there like a deer in the headlights?

Fellow Seeking Alpha contributor Balanced View provided some sound ideas on how to play a pullback in AAPL. If you're sitting on gains there's nothing wrong with being a little defensive at the same time. The entire market, not only AAPL, needs to pullback. It's only natural. Particularly if you're married to your Apple shares, BV's third consideration should resonate with you:

The third (selling calls) alternative is one that could be the lowest risk as it allows you to potentially earn a time premium on top of your stock gains (if the stock goes up). It has risks though and one risk is that if you do not select a strike price far enough away (and Apple pops as it tends to do), then your shares may get called away ... The key decision here is how much higher you feel apple could possibly move and over what time frame. As an example, if you feel that Apple is running out of steam and do not believe that Apple has catalysts in the pipeline that will cause it to go higher than say 650 prior to Oct. 20th 2012 then you could capture a $33 premium/contract (or $3,300) as of Friday but more likely closer to $45 - $50 (or $4,500 - $5,000) when the markets open today. In this case you also gain the entire stock price appreciation from here to $650.

That sort of strategy illustrates the relative meaningless of the dividend to the typical retail investor. If you collect a $33.00 premium on an AAPL call, you not only make the type of cash some people do not make in month (or more), but you give yourself built-in downside protection.

Let's say you bought the stock today for $600 and, concurrently, sold the October $650 call. You would actually take in $38.45 ($3,845) worth of income right now. You cap your gain on the stock transaction at 8.3%. Factor in the buy-write income and you increase your return to 14.7%. Not too shabby. On the downside, you do not start to lose money on the trade until AAPL dips below $561.55. That's just one way to play it.

No matter what you do, consider what you least expect and do not get caught up in the euphoria of short-term and ultimately unsustainable hysteria.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.