Why I'm Selling Apple

| About: Apple Inc. (AAPL)
This article is now exclusive for PRO subscribers.

I don't own a massive amount of Apple (NASDAQ:AAPL), but I am going to sell what I do hold. Shares of America's favorite company have traded in a frustrating range this year. I fully realize how my use of the word "frustrating" should serve as a red flag vis-a-vis my decision to sell. I've thought about it long and hard, however, and I know that I assume the risk of missing the run to $400 and beyond.

AAPL closed at $344.56 on Friday in a week that saw it range from a low of $343.30 to a high of $354.32. While I hardly view the stock as a worthy short candidate, I don't believe the payoff from continuing to hold the shares will match the upside I have already seen. I bought most of my shares around September of last year between $266 and $286. I admired AAPL from a distance for a while before getting in. Clearly, Apple has been good to me, save a loss here or there on some call options. I have several reasons for deciding to sell now.

I am emotionally attached to the company. Until the last few days when I simply lost interest, I have been glued to the chart. I found myself openly rooting for the stock to run. Whenever AAPL dropped or negative news crossed the wire, I reacted with emotion on the level of how I responded to my Toronto Maple Leafs 1993 playoff debacle against Wayne Gretzky and the Los Angeles Kings. In my trading notebook, I scribbled "emotional detachment" on page one. Enough said.

Apple has become Wayne Gretzky. Just as Gretzky is the best player ever to lace up the skates, Apple is the best company to ever submit an SEC filing. There will never be another Gretzky. Eric Lindros couldn't do it. Sydney Crosby won't. Google (NASDAQ:GOOG), Twitter, Facebook, Linkedin -- none of them will approach Apple status. But, just as Gretzky was unable to take it to the next level as a head coach, I don't see Apple being able to build that much further on its greatness.

Apple will dominate for the next year or two. I have no doubt about that. Nobody has been able to come close to the iPod, iPhone, or iPad. And the Mac seems prepared to enter that territory. Given this reality and the fact that it must someday end, investors have priced AAPL beyond perfection. You would think this would give it an Open Table (NASDAQ:OPEN) or Netflix (NASDAQ:NFLX) like valuation, but that's not the case. By the book, Apple is incredibly undervalued. When I say "priced beyond perfection," I mean from a psychological standpoint, not a valuation one. Apple's problem is not just that investors expect big things from the company, but they take them for granted. Companies like Open Table and Netflix enjoy a bit of a different relationship with investors. People don't expect great things as much as they anticipate or hope for them.

While somewhat narrow, the distinction remains important. If Apple misses earnings, it's like Alex P. Keaton coming home with an 'F.' If Apple meets or even beats, observers break out into the music of Janet Jackson. It doesn't matter what Open Table, Netflix, and others have done for shareholders lately, it's all about what they intend to do tomorrow. One day, these companies will no longer enjoy such a grace period. For all intents and purposes, it's over for Apple.

My points have nothing to do with fundamentals or technicals. Part of my reason for dumping the shares is that AAPL no longer plays by those rules. It's pointless to even attempt to invest in Apple on the basis of these factors. In today's market, AAPL should not have a P/E of 20. It should not trade at $345 with tons of cash, no debt, billions in revenue and profits, massive earnings growth, and enormous social and cultural cache. It should not exhibit bullish signs on a chart, only to reverse course suddenly on a rumor, noise, or nothing at all. You can call AAPL undervalued until your blue in the face, it doesn't change the warped psychological sentiment working against the company and holding the shares back.

I am also concerned about the post-Steve Jobs era. No offense to Tim Cook and the rest of Apple's executive staff and foot soldiers, but I don't see them being quite as prolific as Grant Fuhr, Jari Kurri, and Mark Messier, let alone Jobs. Oilers' teams in the post-Gretzky era were still able to carry the torch. While Apple immediately after Jobs might be successful as well, I think, not being able to get a break, the stock will dip further once he's officially no longer part of the company. The optimistic view holds that the overhang of Jobs-related uncertainty will be gone, paving the way for the run to $1,000. Investors will replace Jobs' uncertainty with an indirect and vague anxiety about the future. It's just what the street does to Apple, right or wrong.

And as my colleague, Seeking Alpha contributor Robert Weinstein, has mentioned to me in the past, who's left to own Apple shares? Every retail investor and their grandmother has hopped in. Wayne Gretzky probably even owns a few shares. Gaggles of school kids dollar-cost-averaging into Apple won't give it a pop. And every mutual fund in America owns shares. (Yes, that's an exaggeration). According to Yahoo! Finance, institutions hold about 70 percent of the outstanding shares. Short interest only accounts for about 10 million shares, or around 1 percent of the float.

How I Will Play It

I intend on selling my shares early in the week. The last time Apple split was in February of 2005. If it does again, I would strongly consider getting back in. It's all about emotion with this stock. And if investors see a $175 price tag as opposed to $350 they'll run the shares right back up to $300. It's all quite irrational, but it's part of the reason why I am getting out.

I think AAPL is a much better stock to day or swing trade, as of late. I have seen some success day trading AAPL call options. Given how the stock swings, I think, with some careful attention paid to strike prices and timing, you could do alright buying calls when AAPL settles firmly on a support line and buying puts when it hits a real wall of resistance.

If it didn't tie up so much margin, I would be wholly on board with the idea of selling AAPL put options. Select a strike price you would be more than comfortable (times two) owning the shares at, sell a put at that strike price, collect the premium, and let her ride. You could make a habit of this using AAPL weekly put options. For instance, as of Friday's pricing, you could sell an AAPL April 8th $335 put for $1.72 and pocket the premium for a total of $172. You keep that no matter what. If the shares hit $335 or lower by the options expiration date you might have to buy 100 shares of AAPL for $335 per share. If you're more comfortable with traditional monthly options, selling the AAPL April $330 put option would generate about $237 income at its current ask price of $2.37. Again, make sure you're comfortable owning AAPL at the strike you select if you sell puts.

In conclusion, I still admire Apple more than just about any other company. I still intend to cover it as warranted. The chart will remain on one of my screens each day going forward. I just think my money gets put to better use somewhere other than AAPL stock. I am sure many current shareholders disagree. If you are an Apple shareholder, I hope reading this article at least prompted you to rethink your position in the stock, at least for a second. I hope every investor will take the time reevaluate their holdings, particularly the ones they swore they would never sell. And for the uninitiated, at least you learned something about hockey you didn't know before reading this article.

Disclosure: I am long AAPL but intend to sell AAPL shares over the next 72 hours, closing my long position.