What Causes A Child To Have A Wild Imagination?

i caught my son (an advanced four year old) playing (moving his open palm up and down like a fan.) with himself. His father is in prison for arson and i needed to know if this behavior is early warning signs of some serious problems. He hasnt been left alone with anyone... when i asked him if anyone had touched him down there three times he said noone then told me that a giant had done it in a movie... is he acting out because he had seen it in whatever he said he saW or do you think this is also a lie. he tells stories often and has a wild imagination.