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Dow stock Cisco could drop 5% on earnings, traders say

This tech stock could crash after earnings

There could be rain in the forecast for one major cloud stock as it gears up to report earnings after the bell on Wednesday.

Cisco heads into earnings in good shape, up more than 20% on the year. But as trade tensions heat up and economic data out of the U.S. and China points to a slowing global economy, options traders are growing increasingly worried that the company could get caught in the crossfire.

"The options market is implying a move of about 5% for Cisco after earnings. That's about in line with the 4.5% that it has averaged over the last eight quarters," said "Options Action" trader Michael Khouw on "Fast Money" Tuesday evening. "And although call volume did outpace put volume today on above-average volume, the bearish bets actually outpaced bullish ones."

With call sellers and put buyers leading the way in Tuesday's options trading in Cisco ahead of earnings, it looks like the trading consensus is betting that the cloud stock's earnings report will take a sizable chunk out of that 20% year-to-date gain. One trader thinks we'll see a pullback of nearly 5% that will last through the end of this week.

"The trade I was looking at was a purchase of the May 51-puts. That was the largest one, and included a block of 785 of those that traded for $0.71, so the buyer is obviously making a bet that the post-earnings move is going to be to the downside," explained Khouw.

Cisco was trading about 1% higher in Wednesday's session.

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