(Bloomberg) — A furious bout of options hedging is tightening up a much-watched gauge of market sentiment: the VIX’s discount to realized volatility in the S&P 500.

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Viewed by some as a distillation of trader expectations for market turbulence, the gap, which has recently shown a relatively sanguine view on the future, is no longer doing so. After sitting below the S&P 500’s historical volatility for four weeks, the VIX has quickly popped back up to match it.

The tightening follows several weeks in which demand for hedging subsided, with stocks bouncing back and equity exposure among money managers falling. Friday’s unexpectedly hot inflation reading prompted traders to ramp up their bets on interest-rate hikes in coming months. With the S&P 500 heading for the worst week since January, some impetus for protection resurfaced.

“The VIX is getting more concerned about the future, odds of a 75bps hike in June for example,” said Chris Murphy, co-head of derivatives strategy at Susquehanna International Group. “Options trading has been way more active today than it’s been in the week leading up to the CPI number as the hotter-than-expected print has shaken up markets.”

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Angst is building as investors fret a more aggressive tightening path by the Federal Reserve would drag the economy into a recession. The Cboe Volatility Index, or VIX, jumped more than 2 points to 28.09 as of 2:30 p.m. in New York, while the S&P 500 dropped for a third day, approaching its 2022 low set in May.

The uneasiness was also shown in the options trading of the biggest exchange-traded fund tracking the S&P 500. The SPDR S&P 500 ETF Trust (ticker SPY) saw volume of bearish put contracts outpacing bullish calls by a ratio of 1.78-to-1. That’s the highest ratio in almost three months.

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“Volumes in general was much more skewed to puts rather than calls,” said Danny Kirsch, head of options at Piper Sandler & Co. “Volatility though has acted fairly orderly and that tells us more rolling/monetizing hedges as opposed to adding new ones.”

While puts volume climbed Friday, their cost relative to calls was stuck near multiyear lows, a sign to Murphy at Susquehanna that there was no real rush for hedging.

“We did see a lot of short covering during the bear market bounce over the past week, but I don’t think investors are overexposed here,” he said. “I expect less of a demand for hedging and more of a buyers strike given how reduced the positions have been so far this year.”

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