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Traders are betting big against this biotech stock

Biotech stocks have been taking a beating, and traders see especially bad things ahead for one company.

Questions about rising drug prices have hammered many pharmaceutical companies, with the rising price of Mylan's EpiPen putting that company in the crosshairs recently.

That appears to have led to tough questions about the entire sector, according to Mike Khouw of Optimize Advisors.

"Unlike Mylan, Teva Pharmaceutical doesn't have that specific sort of EpiPen controversy, but it's really the whole space. It's facing a prolonged headwind," Khouw said Thursday on CNBC's "Options Action."

The stock has slipped 10 percent this week, and on Thursday's session, over 2,000 January 45-puts were bought for an average of just under $2. In order for these bets to pay off, Teva shares would have to fall below $43 by January, meaning traders see Teva closing below $43 at January expiration, which is about 7 percent below Thursday's closing price. If Teva falls further, these traders could see big returns.

Of course, these traders may well be hedging outstanding long positions on the stock.



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