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Answer: Long straddle
A receive-realized/pay-fixed volatility swap profits when realized volatility is above the fixed strike, which is a **long volatility** position. The closest listed trading strategy is a **long straddle**, because it benefits from a large move in either direction and has positive exposure to volatility.
Author: Manit Arora
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Q-22.1 Assume an investor enters into a volatility swap as the receive-realized and pay-fixed volatility; i.e., the investor’s payoff = (Realized future volatility - Forward (0) Volatility) * Notional. The investor’s position is MOST SIMILAR to which trading strategy:
A
Covered call
B
Bull spread
C
Long straddle
D
Short strangle
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