Heading into Facebook Inc FB's earnings report after Wednesday's close, it may seem unusual for a large number of investors to be betting against the company -- but that's what's going on behind the scenes, Michael Khouw, President of Optimize Advisors, explained during CNBC's "Fast Money" segment on Tuesday.
Over the past eight quarters, Facebook's stock has moved about 5 percent in either direction immediately following its earnings report, Khouw said. But most of the trading activity in the options market throughout Tuesday's session was betting on a downside move in the stock.
Of particular note, the August $157.50-strike put at an average cost of $2.30 per option saw heavy volume, he said. This implies some traders are making a bet that Facebook's stock could fall 5 percent in three weeks or less.
Put into perspective, Facebook's stock has already rallied 10 percent over the past few weeks alone, which may imply it's due for a pause or a pullback, the "Fast Money" crew agreed. Also, fellow internet and "FANG" member Alphabet Inc GOOG GOOGL saw its stock selloff in reaction to its earnings report.
Finally, Facebook did express some caution in its prior earnings report that its ad loads are reaching saturation rates. While few are expecting Facebook's report to be a "disaster," investors are nevertheless cautioned against "chasing" the stock near all-time highs.
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Facebook Is Set To Report Q2 Earnings As Its Stock Hits New Highs
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