Want to Buy Apple Inc. (AAPL)’s Stock Below $350?

What’s the catch?
Of course, there’s no such thing as a free lunch, and that holds true for this type of options investing. For one thing, options are traded in 100 share increments. To open the position, you’d need to be willing to dedicate nearly $35,000 of your own cash (plus the premium you received from writing the option) to an Apple investment.

For another thing, writing the option obligates you to buy Apple’s stock at $420 a share at any time between when you write the option and options expiration in January 2015. Unless you buy back those options before expiration, your obligation to buy at $420 remains even if Apple’s stock drops well below that level. Also — the options buyer — the person on the other side of that trade — has the right to pick whether or when to exercise that option and require you to buy.

And finally, if Apple Inc. (NASDAQ:AAPL) reverses its slide and starts rising again, you won’t see a dime of that growth (or any of Apple’s dividends) from your position, unless the shares get put to you first. You would, however, get to keep the premium you received for writing the option in the first place — a nice consolation prize, but cold comfort if the stock once again retests its highs.

The article Want to Buy Apple’s Stock Below $350? originally appeared on Fool.com.

Fool contributor Chuck Saletta has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple.

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