The big bet that oil continues to fall into the new year

Options Action: Slippery slope for oil

Crude oil continues to crumble this week, now trading below $60 a barrel for the first time since July 2009 and tracking for its worst year since 2008. And if the options market is any indication, the pain is about to get a lot worse.

In a series of trades that raised eyebrows in the options pits on Wednesday, one trader placed some very large bets that the ETF that tracks oil—the USO—will fall by as much as 7 percent from current levels in the first quarter of 2015.

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In volume that was almost three times the daily average, an investor used a somewhat complicated trade structure to play for further declines.

Specifically, this trader sold 12,000 of the April 26/30 call spreads—a move that indicates this trader feels the USO will stay below $26 per share—and used those proceeds to buy 37,000 April 24-strike puts and an additional 10,000 April 21-strike puts. The trade is basically an aggressive wager that the USO will fall below $21 by April, a 7 percent decline from here.