One trader just bet $4 million that regional banks will continue to sink

[tacobell fan]

Investors are cashing out of the banks.

After a strong start to the year financials have been under fire and are now the worst-performing sector in the past month. The move comes as economic growth concerns and a stall in rate hikes have dragged down Treasury yields.

According to “Options Action ” trader Mike Khouw, the options market is implying the pain could just be getting started for one key economically sensitive group, the regionals. The KRE ETF — which tracks the regional banks — has rallied more than 8 percent this year, but is still underperforming broader market gains of 11 percent in the same time frame.

On Tuesday, Khouw noted that the regional banks ETF saw seven times its average daily put volume. Within the activity was a purchase of 38,000 June 48/42 put spreads paying $1.08 per contract. Since each options contract counts for 100 shares this is a more than $4 million bet that the regional banks ETF will fall below $48 by June expiration.

“Bear in mind this same trader looks to have made a bearish bet last week, they took profits on that,” Khouw said Tuesday on CNBC’s “Fast Money.” “We’ll see if this [trade] also turns out to be fairly prescient, but they’re betting that there will be further downside in the regional banks.”

The regional banks are now sitting in bear market territory, down 23 percent from their 52-week high of $66.04 in June. The KRE ETF was lower Wednesday afternoon at around $50.71.