Question #21

In times of market stress, volatility increases—hence, to meet the objective of providing protection in times of market stress, the volatility trader should execute a long volatility strategy. The only strategy listed that is a long volatility strategy is taking long positions in OTC options. "Rolldown" profits are earned by selling long-dated VIX futures when the term structure of volatility is positively sloped, and benefiting from falling prices as futures fall over time. As such, the rolldown strategy is a short volatility strategy, not a long volatility strategy—so, it is inappropriate. A relative value volatility arbitrage strategy involves buying cheap implied volatility and selling expensive implied volatility—hence, it is volatility neutral rather than long volatility in nature.