(Bloomberg) -- Traders are making big bets on stock market turbulence as the S&P 500 Index retreats from its record high and investors wonder when, not if, the Federal Reserve will start cutting interest rates. 

An hour after trading started on Wednesday, a trader appeared to buy 50,000 call options betting VIX Index could jump toward 50 by April, a level last seen during the pandemic. The cost was relatively cheap — 20 cents for each — and hedged, which enables the buyer to profit from far smaller ripples in the market. 

That follows a number of similar trades last week and Tuesday, bringing the volume of VIX calls with 50 and 55 strikes that appear to be bought to 250,000, for which the trader or traders spent almost $4.4 million. 

As the VIX Index is hovering near 14 — a level that hardly implies a sense of panic — the transaction could be a cheap way to bet on rising volatility as a wall of worry shows few signs of abating. With VIX option costs holding at pre-pandemic level, as measured by the VVIX index, even a modest drop in the S&P that pushed the “fear gauge” higher would likely cause values to surge, offering a profit on the trade.

“Tail risks driven by geopolitics, US elections, and interest rate volatility all make it easy to envision scenarios in which the VIX is much higher in the near term, yet a low and un-volatile VIX has driven down the prices of VIX call options considerably,” said Rocky Fishman, founder of derivatives analytics firm Asym 500. 

The transactions have consisted of several legs, with the trader most likely simultaneously buying VIX 16 put and selling VIX 16 call contracts to hedge the directional exposure resulting from the deal. 

Policymakers on Wednesday pushed back against the notion that the central bank would immediately ease rates, while conflicts in Ukraine and the Middle East and uncertainty around the economy also weigh on investor nerves. 

Read more: Stocks Drop as Powell Downplays March Fed Cut: Markets Wrap

The S&P 500 slid 1.3% at 3:25 p.m. on Wednesday as the Federal Reserve held interest rates unchanged and said it “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.”

Going into the Fed meeting, the option market was pricing in a 0.76% move in the S&P 500 in either direction That’s below last year’s average FOMC-related realized move of 0.86%, data compiled by Barclays Plc. show.

With the S&P 500 trading points away from an all-time high, traders have been showing lackluster appetite for loss protection. The put-to-call ratio is hovering near 0.77 — some 10% below its 10-year average, while a gauge measuring the extent to which the S&P 500 stocks are projected to move in tandem in the next three months is hovering at 0.2, the lowest level since January 2018. 

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