Investors on Wall Street have proven to be ingenious in finding new vehicles and avenues to take risks in the quest of making a profit.

One glaring example is the VIX, the benchmark volatility index used as a measure of market risk, which was invented 24 years ago to signal possible market crashes in the making. But since then, the index has morphed into its own market, a "giant casino" that speculators use to seek big money, shorting the VIX on bets that it will go even lower, the Wall Street Journal reports. In addition, volatility-control investment funds valued at about $200 billion use the VIX as a signal to buy or sell stocks, pension funds are placing bets on its movement, and insurance companies are linking products to it, the Journal says.

Volatility control funds are supposed to help investors avoid big dips in the market, by selling stocks when volatility increases and the VIX rises, per the Journal. However, this can create a vicious cycle in which sales by these funds send the VIX up further, thereby spurring yet more selling and magnifying losses on stocks.

Formally named the CBOE Volatility Index, the VIX is calculated based on the prices of options linked to the S&P 500 Index, and frequently is called a "fear index," on the premise that higher volatility in the markets reflects greater uncertainty.

Nonetheless, the VIX is registering exceptionally low levels of volatility -- and fear among investors -- even as the S&P 500 (SPX), Dow Jones Industrial Average (DJIA​) and Nasdaq Composite (IXIC​) reach new all-time highs, and stock investors increasingly worry about a long-overdue pullback. If that were not contradictory enough, the exceptional calm indicated by the VIX right now is itself a cause of concern for some investors.

When volatility spikes, it can directly affect stock investors. The Journal indicates that increasing volatility led to $50 billion of stock sales in August 2015, and $25 billion of sales after the June 2016 Brexit​ vote.

Financial Crisis Warning Signs

As for today's market, contrarians worry that low values of the VIX are signaling complacency rather than justified bullishness, and recall how the index hit a low just before the subprime crisis broke in 2007, the Journal observes. Similarly, as of this writing, the Investopedia Anxiety Index (IAI), using a very different methodology, indicates low anxiety among Investopedia readers.

There are many signs that the VIX has evolved into a casino, with all of its potential rewards and steep risks, according to the Journal. One example, the Journal says, is a day trader who claims to have earned $53,000 so far this year by shorting the VIX and riding out temporary spikes in its value. There are many investors like him.

Meanwhile, attempts to correlate the VIX with economic fundamentals or specific world events have failed, Erin Gibbs, chief investment officer of S&P Investment Advisory Services, told CNBC. If that were not enough to give one pause about using the VIX to drive investment decisions, a recent academic study finds that traders can sway its value to their own advantage. (For more, see also: Is Someone Manipulating the VIX?)

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