Compare Statement 1 and Statement 2 and identify which best explains the view of a speculative volatility trader and which best explains the view of a hedger of volatility.

Justify your response.

Gupta interviews a currency overlay manager on behalf of Portfolio A. The foreign currency overlay manager describes volatility-based trading, compares volatility-based trading strategies and explains how the firm uses currency options to establish positions in the foreign exchange market. The overlay manager states:
Statement 1. “Given the current stability in financial markets, several traders at our firm take advantage of the fact that most options expire out-of-the money and therefore are net-short volatility.”
Statement 2. “Traders that want to minimize the impact of unanticipated price volatility are net-long volatility.”

Kamala Gupta, a currency management consultant, is hired to evaluate the performance of two portfolios. Portfolio A and Portfolio B are managed in the United States and performance is measured in terms of the US dollar (USD). Portfolio A consists of British pound (GBP)
denominated bonds and Portfolio B holds euro (EUR) denominated bonds.
Gupta calculates a 19.5% domestic-currency return for Portfolio A and 0% domesticcurrency return for Portfolio B.