Investors are turning to volatility-linked investments looking for quick profits

Trading in volatility-linked investments set records in 2016 during a mostly calm year in markets, underscoring the popularity of exchange-traded products that didn’t exist a decade ago.

Daily volume in the five most-traded exchange-traded products that track the CBOE Volatility Index, or VIX, hit a record 84.9 million shares on average this year, FactSet data compiled by The Wall Street Journal show. That is almost double the high set in 2015. The products—exchange-traded funds and notes—trade in real time like stocks on an exchange.

Protecting against losses was once the dominant reason to use volatility products, but investors now are turning to them to make quick profits during isolated periods of market tumult, usually holding them for no longer than one or two days.

But while individual investors and hedge funds have flocked to these exchange-traded products, or ETPs, the products’ record tracking Wall Street’s “fear gauge” has been poor, making investors vulnerable to big losses if held too long.

The VIX’s average this year is 16, in line with its five-year mean. But in 2016, long periods of calm were punctured by volatility spikes after events like the U.K. vote to leave the European Union in June and in the days leading up to the U.S. presidential election, creating trading opportunities for some.

VIX-linked ETPs have become a valuable niche business for providers like Barclay PLC’s iPath and Janus Capital Group Inc.’s VelocityShares and ProShares. The five most-traded VIX-linked ETPs, according to research firm Tabb Group, collectively hold $3 billion in assets.

The iPath S&P 500 VIX Short-Term Futures exchange-traded note, or ETN, is the largest with $1.3 billion. The note has plunged 68% this year and has slumped every year since its inception, FactSet data show.

The VelocityShares Daily 2x VIX Short-Term ETN, which has about $230 million in assets, has tumbled 94% this year after sliding 77% in 2015. In comparison, the VIX has declined 35% this year.

VIX futures ETFs are valuable tools and have been used successfully by many investors to help manage risk or pursue returns.

Investing in these ETPs can be “like holding a stick of dynamite,” said Christopher Cole, the Austin, Texas-based founder of money manager Artemis Capital Management LP. “Owning [the VelocityShares Daily 2x] into the right volatility spike can be very profitable. But if you hold on to the stick of dynamite for too long, your hand will be blown off.”