With VIX collapsing to a 12 handle on Friday, as stocks pushed towards new record highs - despite record high policy uncertainty - one trader took advantage of the 'cheap' protection costs to place a huge bet on the market descending into the kind of chaos not seen since the global financial crisis.

As Bloomberg reports, trading in call options on the VIX outweighed puts by more than 9-to-1 earlier this week as the index at its lowest level since July.

Source: Bloomberg

The standout trade was one block of 50,000 April $65 calls that were bought for 10 cents (for a total costs of $500,000).

Source: Bloomberg

This trade comes at a time when the 'extreme' deep out-of-the-money options are notably rich relative to the more 'normal' at-the-money options - a level that in the past meant either a surge in VIX or a slump in skew.

Source: Bloomberg

Additionally, the S&P's implied correlation at 2019 lows signals that the cost of index protection (macro overlays) is very low relative to the aggregate of idiosyncratic protection hedges...

Source: Bloomberg

The last time the VIX traded near 65 was during the height of the global financial crisis. It touched a record high of 89.53 in October 2008, about five months before the S&P 500’s rout reached its bottom.

Source: Bloomberg

Macro Risk Advisors derivatives strategist Maxwell Grinacoff said the April expiration date is even more interesting. That time frame could capture the impact of a potential recession, a breakdown in U.S.-China trade talks and a variety of political risks linked to the Democratic presidential primary and impeachment proceedings against Donald Trump.