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Trader bets $2M on new lows for this specialty retailer

Options traders are urging investors to mind the Gap.

Shares of the troubled retailer have fallen dramatically in the past year, down more than 27 percent while XRT, the ETF that tracks retail stocks, is up 3 percent in the same period. And now, one trader is betting the stock could fall even further in the next month.

On Monday, when options put volume ran 10 times its daily average, one trader made a big bet that the stock will fall 5 percent in the next four weeks. Specifically, the trader purchased 18,000 of the October 32-strike puts for $1.10 each. Since each put contract accounts for 100 shares, this is a nearly $2 million bet that shares of Gap will fall below $30.90 by October expiration ($110 x 18,000). That puts the stock just a hair above its 52-week low of $30.75 hit Aug. 24.

Read MoreUS retail sales up 0.2% in Aug vs 0.3% increase expected

"What's interesting about this trade is this same person made a bearish bet on Aug. 11 and [Monday] they rolled their trade down and out and bought these," Optimize Advisors co-founder Mike Khouw said Monday on CNBC's "Fast Money." Since the original trade on Aug. 11, shares of Gap are down roughly 9 percent. "The trade also captures September 2015 sales and revenues, which comes out on Oct. 8," he added.

Khouw pointed out that Gap isn't the only retailer in the gutter. "Specialty retailers have gotten hammered lately," he said. In the past year shares of Abercrombie & Fitch, Urban Outfitters and DSW have fallen a respective 22, 52 and 6 percent.

Wall Street analysts seem to sense a turnaround for Gap, however; of the 33 that cover the stock, the average price target is $38.02 with a hold rating. That's 18 percent higher than the current stock price of roughly $32.

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