Markets Are Betting There Is More Downside To Stocks

Wall Street shares ended lower on Tuesday, with the Dow, S&P 500 and Nasdaq indices down 2.38%, 2.81% and 3.95%, respectively.

On CNBC's "Options Action," Mike Khouw of Optimize Advisors said that “a huge trade took place” in the S&P 500 index.

A trader bought 9,375 of the July 3,950/4,550 collars at $52 per contract on average, Khouw mentioned. That represents a buyer of the 3,950 strike puts in July and seller of the 4,550 calls, he added.

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“If you’re buying those puts, then obviously you think the damage is not done or at least there is considerable risk,” Khouw stated. The trader is betting $50 million that the S&P 500 index could fall well below 4,000 by July expiration.