Options Trader Makes Million-Dollar Bet Against Meta Into Earnings

Dado Ruvic | Reuters

Analysts are predicting that Meta, the company formerly known as Facebook, will announce its first-ever quarterly revenue drop when it reports earnings after the bell Wednesday.

The social media giant is in a transition period, aiming to make strides toward becoming a company firmly rooted in the metaverse, with augmented and virtual reality a big part of its push. The transition could take a while, and the options market is betting that this earnings report in particular will reflect Meta's bumpy ride so far, in a year where the stock has been cut in half.

"The options market is implying a move of about 11% [in either direction] after they report earnings, that's higher than the 8.7% that the company has averaged over the last eight quarters. Most of that skewed by the most recent two quarters, when it reported numbers that moved the stock by 17% and 26% respectively," Michael Khouw, chief investment officer at Optimize Advisors, said Tuesday on CNBC's "Fast Money."

The instability in the stock around recent earnings reports has caused an implied volatility spike in Meta's options, meaning that contracts that expire across the next few weeks and months will come with elevated premiums.

One options trader is using that to their advantage, making a $1 million bet that Meta is headed lower.

"The way options traders sometimes try to take advantage of elevated premiums is with calendar spreads, and we saw several of those [Tuesday], including a diagonal. The trader sold 1,500 of the July 29 weekly 147-puts and then bought the same amount of the August 160-puts, spending about $1.1 million in premium," Khouw said.

"We like to say you like your stock to go through your long strikes and to your short strikes. This trader is obviously betting the stock is going to drift lower between now and August expiration."

Meta was up more than 5% on Wednesday afternoon.


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