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By Chris McKhann

The CBOE Volatility Index is up nearly 15 percent to 20.73 as the S&P 500 falls 1.5 percent to just above 1342.

This may sound "normal," as the VIX usually goes up when the SPX goes down, but there are a number of oddities the continue in the volatility market.

In today's action, for example, the VIX is below its morning high of 21.11 even as the SPX hits a new low. And while the iPath S&P 500 VIX Short-Term Futures (VXX) exchange-traded note is up 6.74 percent to 25.81, the VelocityShares Daily 2X VIX Short-Term Note (TVIX)--which theoretically should give 2 times that return--is up less than that.

In addition, the SPX is at the lowest levels since Feb. 2 while the VIX is just up to levels from Feb. 15, and the VXX is in its range from Feb. 27.

Many people bought the VXX and the TVIX with the expectation that the volatility index would move higher in market action like we have had this week. But they were likely doing so simply by looking at the action from last August and September, without an understanding of the actual fund and its mechanics.

Several volatility wonks, including myself, have pounded the table for quite some time about the issues of the VIX-based exchange-traded funds and notes. But the questions I have gotten from readers in the last week make me realize that many people still don't understand what they are buying.

First, almost all VIX-based products are trading products and not something to invest in for any length of time, even if they are called ETFs or ETNs. Second, they do not track the VIX. The VIX is a statistic and therefore not tradable.

These exchange-traded products track VIX futures, which are future projections of where the VIX will be at certain times. As such, it is more like buying a projection on the weather. If the temperature is unusually high today, do you really think it will also be so in a month or three months?

The VIX futures have been carrying huge premiums to the spot reading of the volatility index. So buying a March future was essentially already pricing in a 15 percent increase in the VIX, while buying April futures added another 15-20 percent increase. And the VXX owns those two futures.

Not only that, but the VXX rolls from the lower-priced March to the higher price April every day--buying high and selling low. The TVIX does the same, only leveraged 2 times.

The point here is that you must understand products that you are buying. Volatility products can be great trading vehicles, but only if you understand them

Source: Why VIX Is Vexing Some Traders