Thanks Apple For Killing My Portfolio

| About: Apple Inc. (AAPL)

At least when you make a poor investment decision, you can, most of the time, learn something from the experience if you are willing to listen. Of course, these lessons often come with a hefty price tag.

That's one reason why I like the idea of simulated trading. It gives you the ability to learn inexpensive lessons and run tests on your thoughts, theories and hypotheses.

You may wish to review the last installment in my $100,000 portfolio series, "Going All-In Apple (NASDAQ:AAPL): A Counterintuitive Approach To Investing." In it, I said:

If I went with my instinct and intuition with that load of cash, I would write a couple OTM (NASDAQ:AMZN) puts. With a little bit of market turbulence undoubtedly ahead, I think I could pick AMZN up on a pullback. Once the dust settles, I fully expect AMZN to retest old highs, sustain them and set new highs ahead of its next earnings report.

I do not have nearly the same amount of confidence in AAPL performing all that well into its next report. I realize, however, that this view represents minority sentiment. As such, it's time to go all counterintuitive on you.

As such, I am using $56,500 worth of this cash to do something an AAPL bull might do right about now. I am selling an AAPL May $565 put and collecting $12.00 ($1,200) ...

That move leaves me with $29,793 to spend ($85,093 - $56,500 on reserve + $1,200 in premium income from the short put).

With that dough, I am doing what a true AAPL permabull would do.

Bartender, hit me with 3 AAPL October $530 calls at $69.75 apiece. It costs me $20,925 to get into that position and leaves me with $8,868.

What a true AAPL permabull and fanboy do with that leftover cash? Spend more of it on AAPL calls of course. But, I do not have much cash to spend so let's go for the gold.

Where can I find lots of open interest in October? It's terrifying, but the $700 strike leads the way at over 5,000. At $11.35 each, I can buy 7 AAPL October $700 calls for a total debit of $7,945.

Let's see how that has worked out for me.

I am about to get put 100 shares of Apple at $565 apiece. Because I received $12.00 for writing the put, my effective purchase price at the end of the week (May options expire this Friday) will be $553. As of this writing, that's roughly $19 more than AAPL now trades for.

Chalk up an on-paper loss of $1,900. Assuming the situation remains basically unchanged at tomorrow's close, I get put these shares and then have a decision to make: Sit around and wait for them to recover or cut my losses and run by selling.

I also have to deal with the long calls I loaded up on. I snagged 3 AAPL October $530 calls for $69.75 on May 7. They now trade for $53.00 apiece. Add $5,025 to the loss pile. What a difference 10 days can make.

Let's not forget the favorite play of the most aggressive and bullish of bulls - my 7 AAPL October $700 calls. I picked them up for what seemed like the bargain price of $11.35 each. After all, AAPL traded for like $570 when I bought them. You would have had to be a complete fool to not see $700 coming.

Color me foolish. As I pound my typewriter, those calls wallow at $6.50. Tack on another $3,395 worth of losses.

In all I am facing losses of $10,320 on the AAPL trades. I made them, as I noted 10 days ago, to prove a point.

For one reason or another (I think it has everything to do with emotion, which is often irrational), AAPL permabulls cannot seem to even acknowledge the possibility that the stock swoons. Go back and read the comments and the Tweets -- AAPL longs have been loading up on the same types of trades I made in this simulated portfolio. They have been doing it since earnings.

And it has proven to be a strategy that is good for little more than erasing some or all of the profits you enjoyed on the way up.

I know this is difficult, if not impossible, to believe, but investors lack confidence in an Apple without Steve Jobs. There's a reason why the stock swoons on word of an iPad Mini and reduced-price Macbook Air. Tim Cook has turned Apple normal.

No amount of convincing will shut the AMZN bears up, but the recent trend (courtesy of Yahoo! Finance) says it all:

(Click to enlarge)

Wall Street does not pressure AMZN nearly as much as it does AAPL on short-term noise, flimsy bear cases and broad market woes because it has confidence in Jeff Bezos and the plan he has, almost flawlessly, executed for more than a decade.

After May options expire and Pandora (NYSE:P) reports earnings, I will update the entire $100,000 portfolio, which only consists of these AAPL plays, 3,000 shares of P and some long shot OTM puts on Netflix (NASDAQ:NFLX).

But, for now, think long and hard about how you approach Apple. Attack me all you want for my straightforward articulation of what has taken place, but, given the bravado from AAPL bulls in recent weeks and months, more than a few longs have got to be experiencing a world of hurt. And that's never a fun lesson to have to go through.

Disclosure: I am long P.