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What happened gives some insight into the idea that a very small amount of money (two such inverse volatility funds in question, the XIV and a ProShares fund, the, had a combined $4 billion) can have an out-sized influence on the markets.

But that all changed Monday when the Dow Jones industrial average lost more than 1,100 points and was down more than 1,500 points at one point. The CBOE Volatility Index fell 20 per cent on Tuesday, meaning many inverse products could have made back some of their losses had trading in the products not been stopped.

"There may have been some pretty sizeable program trades that were clicked in". Exchange-traded products that bet against market tumult have gotten shellacked and some even have liquidated. VIX Mid-Term Futures ETN Ipath (VXZ) now has Return on Equity of 3.14. They are geared toward sophisticated speculators, hedge fund investors and other traders with deep understanding of hedging.

The robust hedging activity was in line with a spike in equity market volatility rising to a level not seen in months, said Jim Strugger, derivatives strategist at MKM Partners in NY.

"Risk and return go hand in hand", said Weiss. S&P 500 Dynamic VIX ETN Ipath (XVZ)'s Williams %R presently stands at -39.07. Through Friday, the VIX had lingered below that level for 312 consecutive sessions.

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Two days after a sudden spike in volatility sparked a stock-market crash, market participants are left to ponder the wreckage of the sell-off and the mysterious dynamics that caused it. The pick-up in stock market gyrations early last week drove more people to bet on subdued stock market gyrations, said Anand Omprakash, director of equity and derivative strategy at BNP Paribas in NY.

One day after the Cboe Volatility Index (VIX) saw its largest one-day increase ever―115.6%―Credit Suisse announced it would be shuttering its popular inverse VIX ETN.

VIX-linked ETPs' net short exposure hit a record high on Thursday, Omprakash estimates.

The theory is that investors who suffered massive losses betting against volatility were forced to "panic sell" into the broader market, driving stocks down further.

Investments in the stock market have a positive expectation over time.

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To be sure, the market wasn't down just because of these complex volatility instruments. He said it "absolutely" contributed to the market turmoil.

Just one fifth of XIV's outstanding shares are owned by funds and institutions, according to Morningstar Inc.

"For the first time in quite a long while I think it is extremely enticing", Metz said.

The record spike in the Vix, a market measure of volatility, on Monday led to the closing yesterday of two investment vehicles created to profit from relatively benign conditions amid concerns about investor losses. One such product, the VelocityShares Daily Inverse VIX Short Term Exchange-Traded Note, was valued based on an index calculated from derivatives. Narrowing in on Moving Averages, the 200-day for S&P 500 Dynamic VIX ETN Ipath (XVZ) is at 23.65, the 50-day is 22.90, and the 7-day is resting at 21.76.

Demand from leveraged VIX exchanged-traded products was "the major driver for the move post the cash close", Barclays analysts led by Maneesh Deshpande said.

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