The bears are out on Facebook, this options trader says

The bears are out for Facebook.

Big Tech is reporting earnings this week, starting with Facebook (Facebook News, Stock Quote, Chart NASDAQ:FB), which has some investors worried that the market reaction to its second quarter results will be negative.

Facebook, Amazon and Alphabet are all reporting this week, with the latter two coming on Thursday. And whereas investors appear to have mixed feelings about the quarterly performance of all three, it’s Facebook that is coming into its report facing issues on a number of fronts.

News broke on Wednesday morning that the US Federal Trade Commission had agreed to a settlement on privacy violations related to the Cambridge Analytica data scandal. The agreement will see Facebook fined $5-billion and required to create a board committee on privacy along with having CEO Mark Zuckerberg reporting each quarter to the FTC on the social media company’s efforts to protect consumer privacy.

“We’ve agreed to pay a historic fine, but even more important, we’re going to make some major structural changes to how we build products and run this company,” wrote Zuckerberg in a post, attesting that he plans to “set a completely new standard for our industry” on privacy protection.

The news comes only a day after the US Department of Justice announced that it had opened wider antitrust investigations into the big technology companies. Without naming names, the move is seen as furthering the regulatory push to control the reach and power of Big Tech, potentially leading to the forced breakup of some companies.

Regulatory and antitrust concerns aside, investors will be eyeing Facebook’s second quarter 2019 earnings and hoping for good news on a number of fronts, most prominently on revenue growth, which although likely to still be strong has been slowing during recent quarter, on advertising growth and on the all-important daily active users metric. It was one year ago that Facebook set a record for the largest one-day loss in US market history as investors responded to poorer than expected quarterly results on revenue and daily active users.

And while experts aren’t expecting another record drop, the bears are out nonetheless, said Michael Khouw, president of Optimize Advisors, on CNBC on Tuesday. Khouw says options are implying about a six-and-a-half per cent move after Facebook’s earnings report, lower than the ten-per-cent average in recent quarters but in line with the stock’s longer-term average move.

Khouw points to negative sentiment, saying, “The largest trade we saw was the purchase of over 6,800 of the weekly 180-puts, which traded for just under $0.50. Ultimately, over 11,000 of them changed hands, and that trader would be targeting a move to the downside of ten per cent or more by the end of the week after they report.”

For Facebook’s Q2, analysts are expecting a top line of $16.5 billion, representing a 24.7-per-cent year-over-year increase and EPS of $1.74 per share, a 7.5-per-cent year-over-year increase. (All figures in US dollars.)