"One of the really compelling features of the VIX is that it tends to explode on the upside when the stock market goes down. For example, on February 27 of 2007, the S&P 500 was down 3.5%, and the VIX shot up by 64% in one day. So, in some ways, it's similar to catastrophe insurance," said Moran.

When options on VIX first started being offered in the U.S., big international banks were prime participants, he added. Those large financial institutions were already experienced in trading complex utility swaps over the counter.

"They wanted to hedge their portfolios, and they used VIX futures and options to do so. That was one of the big initial customer segments," said Moran.

Hedge funds also have become big users of VIX options. "Hedge funds love anything that moves, and VIX is one of the fastest-moving products out there, so they are very opportunistic in their trading," said Moran.

In fact, when asked by Heather Bell if he expected an exchange- traded fund tracking the VIX to launch at some point, the CBOE executive observed that operational questions remained.

"Goldman Sachs and others have come out with products such as certificates that have been tied to the VIX. There are futures and options, and if the demand continues, I would not be surprised if someone comes out with some creative solutions," said Moran.

Going the ETN route—using notes in such an obscure market—seems to have proved the key to delivering an investable portfolio accessible on a daily basis to retail markets.

Logical Avenues 

While it might be a logical way to realistically open such avenues to individual investors, ETNs do hold certain risks that ETFs typically don't present.

One is taxes. The notes held by the new iPath VIX ETNs should be considered as prepaid contracts, says Barclays Capital in its filing. Right now, those types of contracts receive favorable tax treatment in that capital gains don't have to be paid until redemption or maturity.

But the Internal Revenue Service ruled in late 2007 that contracts held by currency ETNs weren't subject to the same tax treatment. It's considering related issues with other types of ETFs, although no new rules have been issued. 

Also, since the iPaths will be issued as notes, they'll essentially represent unsecured debt for anyone purchasing the ETNs. That's typical for such investment vehicles. But with the market's ongoing turbulence, it's something to keep in mind.

On Tuesday, shares of the big U.K.-based Barclays Plc tumbled 17% on the London Stock Exchange. Since Monday, Barclays Plc has lost nearly 60% of its value. A report in the British paper The Independent says the bank is under intense pressure to move up its latest earnings call, possibly as soon as this week, from mid-February, to reassure investors. The story also noted that last week Barclays issued a statement saying that its profits for last year would turn out to be well ahead of forecasts by analysts.

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