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Two investment products linked to the Cboe Volatility Index (VIX) imploded in United States after-market trading on Monday.

"The market is a casino on steroids" with these exchange-traded funds and exchange-traded notes, billionaire activist investor Carl Icahn told CNBC on Tuesday during an interview on "Halftime Report ".

Some analysts predicted a big unwind of volatility-tracking strategies by hedge funds and other traders caught with exposure they need to close out.

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. Many investors thought it was an easy trade and poured money into it without understudying its complex structure.

The S&P 500 had not fallen by more than 5 percent for more than 400 days, the longest run since the 1950s, according to Mark Haefele, chief investment officer at UBS Wealth Management.

That sharp upward move in the VIX was ultimately the undoing for the VelocityShares Daily Inverse VIX Short-Term ETN (XIV) and ProShares Short VIX Short-Term Futures ETF (SVXY), which are both created to provide single-day returns that are the inverse of the VIX. Credit Suisse expects to deliver an irrevocable call notice with respect to the event acceleration of XIV to The Depository Trust Company no later than February 15, 2018. And he's refusing to throw in the towel on his money-making strategy.

"We have come through such a statistically anomalous period that even if we just go back to average, it is going to scare people", he said.

Two investment vehicles tied to USA share market volatility collapsed after the S&P500 closed earlier this morning, and it could have significant implications when markets reopen later tonight. Overall VIX options volume hit 3.6 million contracts, or about three times its average daily volume.

Meanwhile, ProShares will continue to operate SVXY, which is structured as an ETF. It had spiked 188% past year, during a period of unusual calm for the stock market.

That spread is likely to adjust higher as funds who have become very comfortable in selling volatility in recent years take a more cautious view. Leverage among the funds may be smaller than before the financial crisis, but they've been able to accrue more assets as momentum across markets marched forward to boost returns.

Dave Roberts, an independent trader of volatility products and associated derivatives, noted that at the expiry of the January VIX contract, the front and second-month contracts were trading at a fairly narrow spread, in contrast to the wider gap at the December expiry.

The VIX, or so-called fear index, is a widely observed indicator for investor sentiment in the stock market and measures the expected or implied volatility of large-cap stock options traded on the S&P 500 index.

"I am a bit surprised that we haven't seen the contagion effect on other markets and that makes me wary about the outlook in the near term", said Morgan Stanley's Redeker.


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