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Traders bet on more pain for stocks

Big bets on volatility

Stocks extended losses on Wednesday after the People's Bank of China moved to devalue its currency for a second-straight day.

The sharp selling has sent a chill throughout the markets this week, as the VIX spiked to a one-month high and the S&P 500 turned negative on the year. And according to some traders, there could be even more volatility for stocks in the coming days.

"The VIX has been a hot topic on the floor [this week]," CNBC Contributor Brian Stutland said Tuesday on CNBC's "Fast Money." The VIX, a measure of volatility in the market, has remained at historical lows for much of 2015, as stocks have traded within a tight trading range.

Read More 5 ways China's devaluation could shake up the markets

But in one eyebrow-raising trade made Tuesday, someone bet the VIX could spike as high as 20 in the next week. Specifically, that trader purchased 20,000 of the August 18/20 call spreads for 8 cents each and then purchased another 9,000 of those call spreads for 10 cents each an hour later. In this trade, that person is betting a quarter of a million dollars that the VIX will move as high as 20 by next week. "That's a huge bet that the VIX trades to the upside," said Stutland. The VIX was trading at 15 mid-day Wednesday.

"I think traders are starting to get concerned about where the market is heading," said Stutland, CIO of Equity Armor Investments. Super spikes in the VIX tend to correlate with selling in the market.

And for Stutland, the recent break below 2,070 in the S&P 500 could open up the floodgates to steeper selling. "I see the VIX going to 20," he said.