As I look at the way Apple ( AAPL) options are trading today I can tell you a few things:

1. There is not very much premium selling going on, especially in large block orders. This implies that the market thinks that option prices as a whole are too cheap.

2. There is a lot of buying in two main places, the straddle and upside calls. The fact that the straddle IV is more expensive in volatility terms than downside is shocking to me. I would have expected AAPL to have a standard equity curve where puts are more expensive than calls. I will explain how this will affect after hours trading in a few moments (once I wrap up calls).

3. Upside calls are being bid up to the Nth degree, this is also quite unusual and a sign of just how exuberant and frenzied upside buying is in this stock. Call buying like this comes from two places.

a. Traders putting on the buy-write synthetic, thus unwinding their long stock and buying calls in case the stock rallies hard.

b. Trader making speculative bets on the upside.

4. October and November as a whole are really pricy, but traders seem to be willing to sell November to buy October.

What does all this mean? I think long holders have a real problem on their hands. Not that AAPL is going to have bad earnings, but that there is going to be some major friction on the upside and little friction on the downside. Holders of long calls (especially upside) are going to have stock for sale as AAPL rallies (if it rallies). This could cause the stock to run into problems as it starts breaking its ATM straddle price.

On the flip side, because IV is so inexpensive on the put side of the curve, it appears that there are not a lot of AAPL put holders, or worse yet, there are shorts. This actually creates a low selling viscosity if the stock does start to sell off. There are very few areas where major firms will have much of an impetus to step in and buy the stock until it gets back towards the $385 level.

My thoughts, I am not sure which way AAPL moves but a short 1 ATM long 2 OTM put ratio spread seems to have favorable odds. While AAPL smells like a stay-away, one trade that seems interesting is the AAPL 425-410 ratio putspread for a $60 credit. However, there are some major risks with this spread and I could see AAPL opening up at $405-$410 tomorrow (which would be really bad).

This stock has a lot of illogical trading going on right now, and I am going to wipe my hands clean on this one. I have presented why I think it's a sell, and I would certainly not be willing to hold the physical stock through earnings.

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At the time of publication, Mark Sebastian held no positions in the stocks or issues mentioned.