What is ‘Shoulda’ Syndrome?
Watching a stock that you liked go up day after day without ever have pulled the trigger and bought some shares [e.g.- I shoulda bought Apple, Google, etc. back near the lows].
‘Shoulda’ is a first cousin to buyers’ remorse (where you purchase something- only to find out later that you wish you hadn’t).
How can writing [selling] puts cure this dreaded disease?
Read on.
We’re all guilty of watching stocks we like go up without us having gotten on board. Then we face the excruciating agony of having to decide whether to bite the bullet by paying more than we needed to, or to risk self-loathing due to watching our pick go up even more while we still don’t own it.
How many times have you said to yourself “If XYZ ever comes back to $20 /share I’m loading up the truck”? Put writing can take some of the sting out of those situations.
Here are the end of June and current prices on a few well known stocks.
Company ................. .Jun. 30, 2009 Close ....... Sep. 30, 2009 Close .......... 3- Month Gain
Apple [AAPL] .................. $142.43........................ $185.35 ........................ 30.1%
Coach [COH] .................... $26.81 ......................... $32.92 ........................ 22.8%
Hewlett Packard [HPQ] ...... $38.65 ......................... $47.21 ........................ 22.1%
Best Buy [BBY] ................. $33.35 ......................... $37.52 ........................ 12.5%
Instead of lamenting having missed the moves consider selling puts that would get you back in only if you could buy at the earlier price points. Here are some actual quotes on puts with the above stocks and the resulting break-even prices you would pay if the options are exercised later.
Company ..................... Jan. 2011 Put Prem. ....... Net Cost (if put) ......... Margin of Safety
Apple [AAPL] ................ $165 put = $22.50 ........... $142.50 ..................... 23.1%
Coach [COH] .................. $25 put = $3.00 ............... $22.00 ..................... 33.1%
Hewlett Packard [HPQ] .... $40 put = $3.80 ............... $36.20 ..................... 23.3%
Best Buy [BBY] ............... $40 put = $8.60 ............... $31.40 ..................... 16.3%
You can clearly see that even if your puts are exercised you’d be buying at, or below, the prices you missed back near the end of June when the overall market was much lower. If the puts you sell expire worthless you won’t buy the shares, but you’ll have been well paid by keeping the premiums collected. If you do get exercised, you’ll end up owning the shares you wished you’d bought earlier, at prices that haven’t been available recently.
I have three rules to always keep in mind when writing puts:
 Only sell puts on shares you think are worth owning at the net exercise price.
 Write only as many puts as you’d be comfortable having exercised.
 Maintain adequate cash and/or buying power reserves in your account to allow for adverse market action.
Disclosure: Author is short puts on AAPL, COH and BBY from earlier this year.
Watching a stock that you liked go up day after day without ever have pulled the trigger and bought some shares [e.g.- I shoulda bought Apple, Google, etc. back near the lows].
‘Shoulda’ is a first cousin to buyers’ remorse (where you purchase something- only to find out later that you wish you hadn’t).
How can writing [selling] puts cure this dreaded disease?
Read on.
We’re all guilty of watching stocks we like go up without us having gotten on board. Then we face the excruciating agony of having to decide whether to bite the bullet by paying more than we needed to, or to risk self-loathing due to watching our pick go up even more while we still don’t own it.
How many times have you said to yourself “If XYZ ever comes back to $20 /share I’m loading up the truck”? Put writing can take some of the sting out of those situations.
Here are the end of June and current prices on a few well known stocks.
Company ................. .Jun. 30, 2009 Close ....... Sep. 30, 2009 Close .......... 3- Month Gain
Apple [AAPL] .................. $142.43........................ $185.35 ........................ 30.1%
Coach [COH] .................... $26.81 ......................... $32.92 ........................ 22.8%
Hewlett Packard [HPQ] ...... $38.65 ......................... $47.21 ........................ 22.1%
Best Buy [BBY] ................. $33.35 ......................... $37.52 ........................ 12.5%
Instead of lamenting having missed the moves consider selling puts that would get you back in only if you could buy at the earlier price points. Here are some actual quotes on puts with the above stocks and the resulting break-even prices you would pay if the options are exercised later.
Company ..................... Jan. 2011 Put Prem. ....... Net Cost (if put) ......... Margin of Safety
Apple [AAPL] ................ $165 put = $22.50 ........... $142.50 ..................... 23.1%
Coach [COH] .................. $25 put = $3.00 ............... $22.00 ..................... 33.1%
Hewlett Packard [HPQ] .... $40 put = $3.80 ............... $36.20 ..................... 23.3%
Best Buy [BBY] ............... $40 put = $8.60 ............... $31.40 ..................... 16.3%
You can clearly see that even if your puts are exercised you’d be buying at, or below, the prices you missed back near the end of June when the overall market was much lower. If the puts you sell expire worthless you won’t buy the shares, but you’ll have been well paid by keeping the premiums collected. If you do get exercised, you’ll end up owning the shares you wished you’d bought earlier, at prices that haven’t been available recently.
I have three rules to always keep in mind when writing puts:
 Only sell puts on shares you think are worth owning at the net exercise price.
 Write only as many puts as you’d be comfortable having exercised.
 Maintain adequate cash and/or buying power reserves in your account to allow for adverse market action.
Disclosure: Author is short puts on AAPL, COH and BBY from earlier this year.
