Trader bets $5.6 million on metals and mining meltdown

After a torrid run this year, metals and mining stocks are about to take a big leg lower — according to one trader.

In a sizable trade on Thursday, someone bet more than $5 million on a nearly 35 percent decline in the S&P Metals and Mining ETF, the XME (NYSE Arca: XME). In the specific wager, the trader bought more than 50,000 of the September 20/15 put spreads for $1.12 each. Since each put option accounts for 100 shares of stock, this is a $5.6 million bet that the ETF will fall as low as $15 by September. The ETF is currently trading around $23.

The XME is up more than 50 percent in 2016, driven by massive moves from some of its biggest holdings. Cliffs Natural Resources (NYSE: CLF), Coeur Mining (NYSE: CDE), U.S. Steel (NYSE: X), Consol Energy (NYSE: CNX) and Freeport-McMoRan (NYSE: FCX) are up a respective 143, 220, 140, 91 and 77 percent year-to-date.

"The XME had broken down at this $25 level. It went all the way down [to $11 a share] and then had an almost 100 percent rally back," Dan Nathan told CNBC's " Fast Money " on Thursday. The metals and mining ETF is down more than 8 percent from its 2016 high of around $25 hit on April 28. "If you look at the decline it's had in the last week and a half and then you look at the long-term downtrend, you see it's failed right below that," explained the founder of RiskReversal.com. "This kind of bet could be a downright bearish bet looking to get some leverage to the downside," he added.

The XME was higher by more than 1 percent early Friday.

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