Apple's new watch has traders punishing one massive retailer

One major retailer is taking the news of Apple's new watch on the chin.

Swatch, the $21 billion Swiss watchmaker, dropped as much as 4.5% on Tuesday, losing almost $1 billion in market value in the process.

Based on the stock reaction, traditional watch retailers like Swatch will have their work cut out for them as they face unprecedented pressure from their most technologically-advanced competition yet. Of particular concern to at least one analyst is how Apple's Series 3 watch no longer requires an iPhone to perform cellular functions - something that could greatly boost its appeal.

"The fact the new watch is untethered from the phone has the potential to be a game changer," Jon Cox, an analyst at Kepler Cheuvreux, told Bloomberg News in an interview. "It is a fight for wrist real estate and superb functionality versus a simple quartz watch. In many cases the quartz watch is going to lose."

If investors trading Swatch options are to be believed, the company's share price woes are just getting started. They're paying the highest premium in a year to hedge against a 10% decline in the company's stock over the next month, relative to the cost of bets on a 10% increase, according to Bloomberg data.

What's more, four of the five Swatch options contracts with the highest open interest - defined as outstanding commitments trading at present time - are bearish puts.

Further, while Swatch was recently identified by UBS as the company most vulnerable to a new Apple product, US watchmaker Fossil is also seen as being potentially affected.

While it's too early to anoint Apple's Series 3 watch as the new king of wristwear, the writing is on the wall for the industry as a whole: adjust or watch your stock fall.