Trader buys disaster protection on China

Chinese stocks are surging this year, but one trader thinks the rally will eventually come to a close.

On Thursday, a trader bought 10,000 of the China large-cap ETF (FXI) November 34-strike puts for 89 cents each. This is a nearly $1 million bet that the FXI could drop 13 percent by November expiration.

But Dan Nathan of sees no trouble in the charts for FXI, leading him to believe that the trader was actually buying disaster protection in the event of a pullback in the Chinese stock market. In fact, Nathan believes that the charts are actually showing that FXI could hit previous highs.

"If you go all the way back to 2012, we're getting to some levels here [that could climb back to those 2012 highs in FXI, suggesting] there's some room to run in this thing," he said Thursday on CNBC's "Fast Money.""I guess someone is [looking for some disaster protection]."

FXI is currently up 12 percent year to date, surging with the rest of the emerging markets.

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  • Melissa Lee

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

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