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Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Pandora Popped, But Will It Crash Again?

Stocks in this article: P NFLX SIRI NOK RIMM AAPL TST

Pandora will, without much of a sweat, survive an Apple challenge, but, even if it never happens, persistent Apple rumors and other noise will continue to hit the stock.

My ground rules for owning this type of name:

  • Consider it a long-term speculative play. Define long-term in multiple years, not months.
  • Look away for no more than 10 to 15 trading days, preferably fewer.
  • Allocate no more than 5% to 10% of your portfolio to the stock. How much depends on your risk aversion, size of portfolio, income, etc.
  • Write at- or slightly in-the-money calls against at least 50% of your position.
  • Sell at least 50% of your position on pops (like the one we're seeing now) or simply watch shares get called away.
  • Add to your position on dips, such as the one Pandora just rebounded from.

If Pandora ends up being for real and takes off (I think this happens over the next one to three years), you'll have a starter position you can more confidently add to. If it doesn't, you probably will not have hurt yourself too badly.

Before I became a full-time employee of TheStreet (company policy prohibits full-time editorial staff from owing individual stocks with the exception of TheStreet (TST)), I exited a position in P. Even with a cost basis of $10.19, I closed the position just above breakeven thanks to covered call writing.

You can own Pandora.

If you have well-thought out, long-term conviction when others are bearish, it's the type of stock that can pay off in a big way over the long haul (see, e.g., Sirius).

However, you must not be a passive shareholder. Buy on dips, sell on spikes and write covered calls. Don't go overboard. That type of moderation might keep you from making a killing, but it, more often than not, it will keep you from getting killed.

--Written by Rocco Pendola in Santa Monica, Calif. Pendola is long TST in multiple accounts.

Rocco Pendola is TheStreet's Director of Social Media. Pendola's daily contributions to TheStreet frequently appear on CNBC and at various top online properties, such as Forbes.
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