We report the discovery of a large amplitude (factor of $sim$100) X-ray transient (IC 10 X-2, CXOU J002020.99+591758.6) in the nearby dwarf starburst galaxy IC10 during our Chandra monitoring project. Based on the X-ray timing and spectral properties
, and an optical counterpart observed with Gemini, the system is a high mass X-ray binary (HMXB) consisting of a luminous blue supergiant and a neutron star (NS). The highest measured luminosity of the source was 1.8$times$10$^{37}$ erg s$^{-1}$ during an outburst in 2003. Observations before, during and after a second outburst in 2010 constrain the outburst duration to be less than 3 months (with no lower limit). The X-ray spectrum is a hard powerlaw ($Gamma$=0.3) with fitted column density ($N_H$=6.3$times$10$^{21}$ atom cm$^{-2}$) consistent with the established absorption to sources in IC10. The optical spectrum shows hydrogen Balmer lines strongly in emission, at the correct blueshift (-340 km/s) for IC10. The NIII triplet emission feature is seen, accompanied by He II [4686] weakly in emission. Together these features classify the star as a luminous blue supergiant of the OBN subclass, characterized by enhanced nitrogen abundance. Emission lines of HeI are seen, at similar strength to H$beta$. A complex of FeII permitted and forbidden emission lines are seen, as in B[e] stars. The system closely resembles galactic supergiant fast X-ray transients (SFXTs), in terms of its hard spectrum, variability amplitude and blue supergiant primary.
