Retirees and other retail investors should exercise caution when considering investments in volatility-linked products. The Cboe Volatility Index (VIX), often referred to as the “fear index,” attempts to track future volatility in the stock market based on S&P 500 Index put and call options over a 30-day period.

Recently, the Financial Industry Regulatory Authority (FINRA) issued a regulatory notice warning member firms about VIX-Index linked products, emphasizing that they are highly likely to lose value over time. Specifically, these products may not be suitable for retail investors, especially those planning to use them as traditional buy-and-hold investments.

Several exchange-traded investment products are linked to the VIX Index, including:

1.   iPath S&P 500 VIX Short-Term Futures ETN (VXX)

2.   Proshares Short VIX Short-Term Futures ETF (SVXY)

3.   Proshares Ultra VIX Short-Term Futures ETF (UVXY)

4.   VelocityShares Daily 2x VIX Short-Term ETN (TVIX)

5.   ProShares VIX Short-Term Futures ETF (VIXY)

6.   iPath S&P 500 VIX Mid-Term Futures ETN (VXZ/VXZB)

7.   VelocityShares VIX Short-Term ETN (VIIX)

These VIX-linked products garnered significant attention after a massive 118 percent spike in the VIX Index on February 5, 2018. This event led to the high-profile collapse of the VelocityShares Daily Inverse VIX Short-Term (XIV) ETNs, issued by Credit Suisse, resulting in substantial losses for many retirees and retail investors.

A recent FINRA securities arbitration hearing in New Orleans, Louisiana, resulted in a $250,495 arbitration award in favor of a retiree who made suitability claims against their broker for recommending unsuitable investments, including the iPath S&P 500 VIX Short-Term Futures ETN (VXX). Other broker-dealers who recommended VIX-linked products to retirees and investors are also being investigated for potential claims.