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Buying Apple One Slice at a Time

NEW YORK (TheStreet) - How do you eat an elephant? The same way you eat an apple -- one bite at a time.

For many, the idea of buying Apple (AAPL - Get Report) may seem the same as trying to eat an elephant. With a price tag over $56,000 for a single lot of 100 shares, it's easy to understand why. Even if you're an Apple perma-bull, diversification is lost when a $120,000 portfolio is half Apple.

Apple has just about everything a long-term investor wants -- dividend, brand, financial strength, leadership and future outlook. I believe the next stop on the Apple train is $600. You can read how I arrived at my conclusions here, here, and here. The problem for many investors is the oversized per-share price. I cringe each time I'm told someone bought call options because 100 shares were too much.

I'm going to demonstrate how you can create and hedge your position using the same strategies as the largest Wall Street hedge funds while using a more modest portfolio. The first step is to buy Apple in what's known as an "odd-lot". An odd-lot is a trade that isn't a multiple of 100 shares. For some this comes as a surprise, but there isn't a rule that says you have to buy 100 shares at a time.

For example, almost all brokers will allow you to buy 10 or 20 shares just as easy as buying a full 100 shares. Nothing actually changes except in your broker's statement, you have maybe 23 shares instead of the usual multiples of 100. In fact, if we use Amazon (AMZN) as another example, buying 10 Amazon shares at $380 is no different from your portfolio's point of view than buying 100 shares of Voxeljet (VJET) at $38.

The problem with odd-lots in the past is it was difficult to hedge with options. In order to sell covered calls in the past you needed to own at least 100 shares of the underlying. The standard size contract for exchange traded options has always been 100 shares. This year, the Chicago Board Options Exchange (CBOE) introduced option contracts sized at 10 shares to fill a need for hedging strategies for super-sized share prices.

Apple, Amazon, Google (GOOG), SPDR Gold Trust (GLD), and SPDR S&P 500 (SPY) have 10 share option contracts available. If you want to ride the daily new market highs train, but don't want to outlay $17800 to buy 100 shares, you can. $1,780 can buy 10 shares, and now you can sell a covered call or buy a put to protect your investment against a market crash.

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AAPL $117.34 -0.81%
FB $107.12 2.76%
GOOG $767.04 3.29%
TSLA $237.19 3.01%
YHOO $33.71 -0.30%


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DOW 17,888.35 +168.43 0.95%
S&P 500 2,102.63 +22.22 1.07%
NASDAQ 5,156.3060 +47.64 0.93%

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