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Trader bets $2M against China

Fears of a China meltdown are once again sweeping the market.

In the last year, shares of the FXI, the ETF that tracks China's large-cap stocks, have suffered a series of steep declines followed by sharp relief rallies. Most recently, the ETF surged 25 percent from its February low to its 2016 high made in mid-April. Since the ETF's high, the FXI has fallen nearly 10 percent and that has one trader betting that this may just be the start of another major meltdown in the Chinese stock market.

In a sizable trade on Wednesday, someone bet nearly $2 million on a more-than 5 percent decline in the FXI. In the specific wager, the trader bought more than 30,000 of the June 31 puts for 61 cents each. Since each put option accounts for 100 shares of stock, this is a $1.8 million bet that the ETF will break below $30.39 in the next five weeks. The ETF is down more than 35 percent in the last 12 months.

"[The trade is] probably targeting the lows that we saw in January and February for the Chinese market," said Optimize Advisors' Michael Khouw on CNBC's "Fast Money." Retesting the February lows of $28.10 implies an 11 percent lower from current levels Thursday.

Khouw noted that in addition to the large put purchase, there were a number of trades in the options market targeting a move lower in the FXI. "It doesn't matter whether it's the same trader or not," said Khouw. "These are indications that it will get below $31, targeting $29 but no lower."

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