Apple Jumps, Is It Time To Bail?

| About: Apple Inc. (AAPL)

A couple of days ago I wrote this article about Apple (NASDAQ:AAPL), and why it was still a buy despite a large price increase. Writing that at a price of around $470, perhaps the situation was different to now, at $494.

In the past couple of days, the Greek crisis almost looked like it was resolved before Friday -- when European finance ministers decided to hold back on the countries rescue package of €130bn (see Friday morning's Wall Street Breakfast). More importantly, however, the Apple share price has jumped. Thursday saw a 3.46% jump, which is fairly sizeable for a one-day increase. This was mostly put down to its announcement that the iPad 3 would be unveiled soon.

Before market open Friday, Apple's share price had risen 8.36% in the last five days, and 16.94% in the last month. Such an increase will lead any knowledgeable investor to expect a correction. Does this mean that you should pull out?

Short Term:

In the short term, this sudden increase could be a very good reason to pull out of the stock. The chances of it falling from here over the next two to five days are very high, and it is difficult to see how another substantial gain would be possible. If you are a short-term day trader, then this could be the time to pull the plug and get out high before jumping back in a little lower. Of course, you run the risk that the price will never fall and you'll be left watching the market soar as you sit on the sidelines. Such is the dilemma of any trader, and opportunities will sometimes be missed.

Long Term:

A quick check on Yahoo will show you that the mean analyst price target for Apple is $568.49 and the median is $599. Clearly these are both miles ahead of the current price of $494 at the time of writing (15% and 21% respectively). Therefore, it seems logical that long-term the position in Apple is worthwhile. If you were lucky enough to buy in at any time before Thursday, then you are already sitting on a decent profit, and a reduction in that profit wont be an issue before the stock continues climbing on its way to the targets. Of course, if there is a correction then its duration would be unknown, but you will struggle to find an investor who doesn't think that Apple will be above $500 by the end of the year.

There are alternative ways to play the stock as well. Many cite the only reason that Apple would fall as being a large contraction of the entire market due to a crisis. If you are of this belief, then buying a call at a strike price of around $500 for expiration in January '14 might perhaps be a solid bet. Alternatively, if you are of the strong belief that it will contract short term, then buying puts around the $495 (depending upon how bearish you are) level could be a good idea. Straddles and covered calls may be too complicated for many, but basic options trading could still be worthwhile, and enable you to exploit any gains whilst capping potential losses.

In summary, your feelings towards an Apple purchase should probably depend upon your investment time frame. For short-term traders, only the most bullish on Apple would see this as a good time to buy given its enormous rise recently. However, for long-term investors, Apple is a brilliant stock-- and one that every investor should consider holding.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours.

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