There's the rub: VIX bets turn cash into vapor

Thursday's good economic news was bad news for investors who bet big on volatility last month. An upside surprise in private payroll data and the European Central Bank's announcement of an unlimited short-term bond purchasing program sent stocks soaring and the most popular volatility hedge to record lows on Thursday. The S&P 500 rose 1.9% to 1,430 by mid-day Thursday, its highest level since May 2008, on the news. The $2 billion iPath S&P 500 VIX Short-Term Futures exchange-traded note Ticker:(VXX), however, was down 7% and trading at an all-time low of just over $10 a share. The sharp drop comes after investors poured $703 million into the ETN in August, pushing its assets to $2.058 billion, the second highest total assets ever for the ETN. In September 2010 it topped $2.3 billion in assets, according to Lipper Inc. Sharp drops are nothing new for the ETN, which invests in short-term futures contracts tied to the Chicago Board Options Exchange Market Volatility Index, or VIX, the most popular measure of implied volatility. In fact, since the ETN was launched in January of 2009 at $400 a share, it's done nothing but steadily head downwards. A $10,000 investment at the ETN's inception would be worth approximately $250 today. Inexplicably, the ETN's performance hasn't dissuaded investors. Over the past three years, more than $5.8 billion has flowed into VXX, according to Lipper. Source: Morningstar Inc.