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Trader tries to make $18M betting against S&P ETF

A trader works on the floor of the New York Stock Exchange.
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A trader works on the floor of the New York Stock Exchange.

In one of the Tuesday's biggest options trades, a major player spent $1.6 million on a highly risky bearish bet against the market.

Shortly after the open, three major blocks of S&P 500 ETF (SPY) options all expiring on June 30 were traded at once. In the most expensive "leg" of this option trade, 25,000 183-strike puts were bought for a total of $6.4 million. Against that purchase, 30,000 175-strike puts were sold for $3.3 million, and 10,000 192-strike calls were sold for $1.5 million.

That means that for a total cost of $1.6 million, this trader is betting that the (SPY) will fall 7 percent to the $175 level, which is just above its low for the year. If it does fall to that level, this trader will see $20 million in gains, for an $18.4 million profit on the trade. Below $175, the trader's gains will be capped by the sale of the 175-strike puts.

Read More This will send S&P up 20%: Morgan Stanley's Parker

However, what is perhaps most noteworthy is that the 192-strike calls were sold in addition to the 175-strike puts. While this makes the trade less expensive, it also make the trade quite risky, because now the trader is technically subject to unlimited losses above $192—and $192 is not far above current levels.

"It's kind of tight, to sell the 192s," commented Dan Nathan of RiskReversal.com. "That just makes this trade that much more bearish."

Of course, this trade could be an attempt to hedge equity exposure through the first half of 2014, rather than to bet against the market outright.

"People trade the (SPY) for all sorts of reasons, so really it's impossible to say," Nathan said. "But a drop to $175 would actually be the steepest peak-to-trough decline we've had."

—By CNBC's Alex Rosenberg.

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