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Trader bets nearly $2 million on more pain for biotech

Biotech stocks are tracking for their worst month of the year, and one trader is betting on more misery.

The iShares Nasdaq Biotech ETF, IBB, fell more than 3 percent in the past week, and if history is any indication, it could get a lot worse.

Over the past 10 years, August has been the worst month for the IBB with total returns averaging minus 2.2 percent. July has been the best month with average total returns at 5.9 percent.

While the IBB is up nearly 15 percent this year, sentiment in the options market is bearish, according to Dan Nathan of RiskReversal.com.

"Put volume ran really hot," Nathan said Thursday on CNBC's "Fast Money."

Looking at the S&P biotech ETF, the XBI, which is more equal weight than its Nasdaq counterpart, Nathan noticed one eyebrow-raising trade in the options market.

There was a buyer of 10,000 of the September 74/68 put spreads for $1.67. This is a nearly $1.7 million bet that the ETF will fall below $72.33 by September expiration.

"Obviously, this trader has some kind of good profits, but is looking to protect over the next month or so," Nathan said.

While the XBI is up more than 26 percent this year, it has fallen almost 10 percent since making a 52-week high on July 24.

Looking at the chart, what's "kind of interesting, the convergence of the uptrend from the 52-week lows and the breakout level from earlier in the summer. That gets you back down towards that protection level," Nathan added.

The XBI was trading at the $74.65 range midday Friday.

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