Trade Alert – Locking in Softee profits and noting how mea culpas are key to success

There are times when stocks are boring, rangebound and steady-Betty. This is not one of those times. Even as the markets seem to be having a hard time breaking out to meaningful new all-time highs, there’s just a continued wild undercurrent in many of our stocks.

I make many mistakes and one of the keys to long-term success is accepting that fact beforehand. And then admitting that fact afterward. I bring this up today because my old mentor Robert Marcin noted this morning that, “$ZAGG, an oldie but baddie, disappointed again last night. Zagg is a perfect example of why one does not marry a trade. Period. And even though they never achieved a fairer valuation the wrong way, it was a sell on the first miss as I wrote. Learning to admit one’s thesis has been wrong is key to long term investment success. Heck, I have sold a stock the day after i purchased it when a bad quarter/outlook altered my bullish case.”

I think this is an incredibly important point to bring up for the readers of The Cody Word, even as I have made this very point about ZAGG itself back about the same time as Marcin was selling his own position. From http://tradingwithcody.com/2013/05/03/trade-alert-zagg-drag-and-how-we-should-be-set-up-in-this-market-right-now/ “I failed in this trade. Mea culpa. One of the most valuable lessons I have learned over the years and one that is why you subscribe to this service is the ‘cut your losses’ idea. $ZAGG was a small position for me already but I’m going to cut my losses on it and move on.”

There’s a difference between knowing when to cut your losses because, as Marcin put it, something has altered your bullish case and with sticking to your guns. I’ve been sticking with our Microsoft call positions even as I “felt like an idiot for ever having bought them” because even though the trade went against me immediately, nothing had actually changed with my “Ballmer says goodbye, I say hello” thesis that I thought would take six months plus to play out.

And here we are today, and with the latest CEO rumors coming out of Redmond, those call options have actually played out profitably now exactly according to our thesis. Certainly, my timing could have been better even as my tranche-approach allowed me to buy more as it fell and thereby lower my cost basis, but it is what it is. Mea culpa on not nailing the exact recent bottom in Softee and making this whole trade more volatile than I’m sure you’d have liked.

And on that note, with Microsoft up nearly 20% in pretty much a straight line, I’m going to sell about 1/3 of my Softee call options, starting with the lowest-priced strikes and the nearest expiration dates, as those have the most value and therefore have the most to lose if the stock were to drop again. Buying and selling in tranches helps keep the “mea culpas” and therefore also the mistakes in your portfolio to a minimum.

And I’ll repeat what I wrote earlier, “Tesla’s quarterly report was exactly as I’d expected, not up to the elevated expectations. So the stock was off about 10% earlier this morning and is now off nearly 15% an hour into the trading day. I’m going to sell half my $TSLA puts right here, right now and then will sell almost all the rest of them over the course of today, keeping just a small tranche on the sheets and maybe looking to roll up into some new puts after this stock settles post-quarterly report.” Still trimming those down though I got a bunch sold near the lows of the day which came right after I sent out that Trade Alert. You’ll never nail the exact bottom or the exact top. And no mea culpa needed for that.