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Traders see more pain for stocks

Despite the fact that the S&P 500 is less than 3 percent from its all-time closing high, the recent tumble in media and biotech stocks has sent a chill through the options market. And now, some traders are betting on more pain to come in the broad market.

On Thursday, when bearish bets doubled those of bullish ones, one trader bet $9.5 million that the S&P 500 ETF, the SPY, would continue its decline over the next two weeks. Specifically, that trader, or institution, purchased 45,000 of the August 207.50-strike puts for $2.10 each. Since buying a put is a bearish bet that allows a trader to sell a stock, or in this case an ETF, at a given price for a set time, this trader makes money if the SPY falls below $205.40 by Aug. 21.

Read MoreStocks are a 'disaster waiting to happen': Stockman

"What's interesting to me about this trade is this person was rolling down a bearish bet," Mike Khouw, an options expert and CNBC contributor, said Thursday on CNBC's "Fast Money." Khouw noted that the trader sold the August 28 weekly 210-strike puts, taking in a total of $30,000 in order to purchase the 45,000 207.50-strike puts. "Farther and faster appears to be the bet here."

Prices for put options remain historically inexpensive. The VIX, which measures prices for puts and calls on the S&P 500, is trading around 14, well below its historical average.

And Khouw is finding signs of life in an unlikely sector. "I like to see a little bit of strength in these energy stocks and a lot of them are beginning to look quite weak to me," he said. "From my perspective I think we are seeing a bit of bifurcation. People are rotating out of the strong names and moving into some of those that have been hit hard lately."

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  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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