Crude oil (New York Mercantile Exchange: @CL.1) fell to a two-month low this week and is close to breaking below $40 as concerns over mounting inventories and a slowing global economy had investors hitting the panic button.
The move lower in crude trickled down to big oil stocks, as the XLE (Mexico Stock Exchange: XLE-MX), the ETF that tracks the energy sector, fell 6 percent and tracked for its worst week since late August. And that sparked a flurry of bearish options activity in the biggest oil name of them all: Exxon Mobil (NYSE: XOM).
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On Thursday, when bearish options activity outpaced bullish by 10 to 1, there was one standout trade that suggested Exxon could hit multiyear lows in the next five months.
In the eyebrow raising wager, the trader — or institution — bet more than $7 million that Exxon Mobil shares will plummet through the first quarter of next year. Specifically that trader purchased 70,000 of the April 70/60 put spreads for $1.05 each. Since an option contract controls 100 shares, this person paid $7.35 million on a bet that Exxon Mobil shares will fall as low as $60, or 24 percent, by April expiration. The stock is already down more than 16 percent this year, but it hasn't traded at sub-$65 levels since August 2010.
Since Exxon Mobil makes accounts for more than 17 percent of the XLE, a 20-plus percent decline in the stock could just be the tip of the iceberg for another year of massive declines in the energy space.
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