As the prices of the options that LTCM had sold rose (in other words, as their implied volatilities increased), LTCM had to transfer collateral into accounts held by its counterparty banks. If LTCM failed, those banks would lose the hedge LTCM had provided them with (in other words, they would be "short volatility") but they would now own the collateral in the accounts. So it was in their interest that the implied volatility of the index options LTCM had sold should be as high as possible.

Donald MacKenzie, An Engine, Not a Camera, loc. 1066