Trader makes $12 million bet on more pain ahead for the small caps

One trader just made a $12 million bet against small caps

are getting crushed and one trader just made a massive bet that the pain is just getting started.

The Russell 2000 has plunged 15 percent from its August highs as volatility roils the markets. According to Dan Nathan of, the options market is implying another big leg lower.

Specifically, Nathan highlighted one massive bet that the could shed another 7 percent before bottoming. In this wager on Thursday, there was a buyer of 35,000 January 140 strike puts for $3.31 per contract.

Since each options contract counts for 100 shares of stock, this is a more than $12 million bet that the IWM ETF will fall below $136.69, or down about 7 percent in the next four months.

Despite being up more than 21 percent in the past two years, Nathan notes that the IWM's recent free fall through its uptrend line could be setting it up for a make-or-break moment as it approaches a key resistance level around $140. He advises those looking to play the move through options to play close attention to contract expirations.

"That's how options trade you know, use strikes by looking at the technical." he said Thursday on CNBC's "Fast Money." "Short-dated options are going to be really bid up and you know the price of options, so you want to move them up a little bit."

Shares of the IWM ETF were down modestly on Friday afternoon at around $148.