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Trader makes $4 million bet on major pullback for financials

The financials have been on fire, but one trader is making a more than $4 million bet that the run is done.

The financials ETF, XLF, has rallied 13 percent this year with 5 percent of those gains in the past month alone. According to Dan Nathan of RiskReversal.com, sentiment in the options market this week has been bearish after earnings reports from the big banks.

In one massive trade, Nathan pointed out that someone purchased 146,000 of the January 25/22 put spreads for 30 cents each. Since each options contract accounts for 100 shares of stock, this is a $4.4 million bet that the XLF could fall as low as $22 by January expiration, as much as a 16 percent drop over the next three months.

This trade could "possibly be some protection against a book of bank stocks here ... and the rally that they had into earnings," Nathan said Tuesday on CNBC's "Fast Money."

"The way I see it is, that September low in the XLF was about $24. Looks to me like a little bit of an air pocket down to the breakout level from late 2016 after the election," Nathan said. "This is a dollar-cheap way to make a bet for a pullback, round-tripping the whole move from postelection."

XLF was trading in the $26.33 range midday Wednesday.

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