Are there any instruments that I can use to trade bitcoin volatility? In the stock market, there are several financial products that allow an individual investor to trade/hedge daily volatility? As an example, there is the VIIX. Are there any such financial products available in the bitcoin community? IF one wanted bitcoin exposure for a day or two, due to a major event, is the only way to buy bitcoins themselves?
A VIX index can easily be reconstructed.

Trading that index should be somewhat achievable with a multi-signature transaction, depending upon the limitations of the implementation.

If it is completely private without any regard for transparency at full counterparty trust, a binary option can easily be constructed.  If the BTCVIX is >= X at expiration, pay 100% to party A else pay to party B.  The possible price is (0,100)%, rationally speaking where one party "buys" at P% and the other party "sells" at 100-P%.  In reality, both parties deposit the funds into the transaction, and the winner takes all.

The problems involved with multisigs have been extensively discussed here and elsewhere, but layers can be added to the transaction to ensure smooth functioning such as posting the text of the terms of the transaction in the transaction, both parties posting margin which is returned upon exercision, a 3rd party that cosigns with one party to free the funds, etc.

The complexity thus costs skyrockets with vanilla options because of having to recreate a margin mechanism.