By Saqib Iqbal Ahmed

NEW YORK Options traders are taking advantage of muted U.S. stock market gyrations to load up on contracts that would jump in value should equities see a big drop, boosting the number of open contracts on Wall Street's most popular volatility gauge near a record high.

The one-month moving average of open contracts on the Cboe Volatility Index hit 13.80 million on Wednesday, close to the record high of 13.85 million contracts logged in late June, according to Refinitiv data.

The demand for hedges comes amid a steady rally in stocks that has weighed on the VIX - which tends to move inversely to equities. The index slipped 1.13 points to 13.71 on Wednesday after stocks rose following data that showed inflation cooled further in June. That is just shy of the more than 3-year low of 12.73 touched in mid-June.

The drop in volatility has made it cheaper to hedge against future gyrations in stocks, prompting some investors to swoop in and buy protection on the cheap, said Garrett DeSimone, head of quantitative research at OptionMetrics.

"This is a type of environment where volatility is cheap and to buy such hedges makes sense for a lot of institutional investors," said DeSimone.

On Wednesday, some 500,000 VIX options had changed hands by noon, at 1.3 times the usual pace, according to Trade Alert data. Call options that would make money if the volatility index nearly doubled to 25 by July 19 were the most actively traded VIX contracts.

More broadly, call options account for 17 of the 20 largest blocks of open VIX contracts, with options expiring July through September, Trade Alert data showed.

"There is a lot of seasonality to the VIX," DeSimone said. "It's like the summer doldrums now, but you do get a pick up in September and October," he said.

(Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Diane Craft)