Ray Dalio's Bridgewater Associates LP has bet more than $1 billion that stock markets around the world will fall by March. The wager, assembled over the past few months and executed by a handful of Wall Street firms, would pay off for the world’s biggest hedge fund if either the S&P 500 or the Euro Stoxx 50—or both—declines, some of the people said. It is made up of put options, which are contracts that give investors the right to sell stocks at a specific price, known as a strike, by a certain date. They allow investors to shell out a relatively small amount of cash to hedge a larger portfolio or make a directional wager. The options expire in March and currently represent one of the largest bearish bets against the market. Bridgewater paid roughly $1.5 billion for the options contracts, or just about 1% of the Westport, Conn., firm’s $150 billion in assets under management, according to people familiar with the matter. The options contracts are tied to around $100 billion worth of the indexes, said people familiar with the matter. How much the firm stands to potentially make would depend on many factors, including the magnitude of any market decline and the timing of when the firm cashes in its bet.