After the recent spike in volatility, traders have increased short bets on CBOE Volatility Index, or VIX, with bearish-related exchange traded fund options, anticipating the markets will mellow out.

The VIX, or so-called fear index, is a widely observed indicator for investor sentiment in the stock market and measures the expected or implied volatility of large-cap stock options traded on the S&P 500 index. ETPs that track VIX futures allow investors to profit during rising volatility or hedge against short-term turns.

However, this year has been characterized by a lack of volatility, which has caused many traders to pick up inverse or bearish bets on the VIX, betting on greater complacency in the markets.

“Selling Vix is very crowded and fraught with danger,” Peter Tchir, an analyst at Brean Capital, said in a note, according to Financial Times. “I think that the strategy of selling short-term Vix futures is not only extremely popular, but that the recent spike in Vix encouraged a large number of investors . . . to reload on the trade or enter into it for the first time.”

For instance, the VelocityShares Daily Inverse VIX Short-Term ETN (NYSEArca: XIV) and the ProShares Short VIX Short-Term Futures ETF (NYSEArca: SVXY), which both follow the inverse or -100% daily performance of VIX futures, have more than doubled in size over August. Assets held by the two ETPs have surged to a record $2.6 billion after the recent bout of volatility sent the two ETPs reeling.

Traders are willing to keep betting on lower volatility as the investment has generated huge profits in an ongoing bull market environment. For instance, the bearish or inverse VIX ETF, the REX VolMAXX Inverse VIX Weekly Futures Strategy ETF (BATS: VMIN), has also been one of the best performing ETFs this year due to the ongoing risk-on environment and falling VIX.

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