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Options Analysis: AAPL, FB Into Earnings

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I have been studying both Apple (AAPL) and Facebook (FB) closely into earnings next week. While both companies look great, I think they are both due for a dive. Take a quick look at FB skew structure in the cycle that has its earnings. Notice how flat the curve is and how well bid the calls are. This is almost always a sign of traders dumping stock and levering up on calls and/or the retail public exuberantly buying the stock ahead of earnings. Additionally, the IV of the options as a whole are off the charts high. FB vol is higher now than when it listed.

At this point I would flatten up a long position in both AAPL and FB and look to take some money off the table. I have a small position personally in my IRA that I will be working to close over the next few days.

Moving into earnings next week I will likely set up a front spread trade for TheStreet that could potentially kill it if FB moves higher by 10%, or so, but will do well if the stock drops, which I think is more than likely to happen.

In terms of AAPL, the movement is not nearly as bad, but still looks screwy, as it is feeling toppy. If I had a position I would be lightening it up.

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At the time of publication, Mark Sebastian held positions in AAPL, FB.

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