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How Does the Settlement of a Variance Swap Differ from a Standard Stock Option?

Option payoff is linear on price difference; Variance Swap payoff is linear on variance difference.
Greeks.Live24.11.25

How Does the Settlement of a Variance Swap Differ from a Standard Stock Option?

A standard stock option's payoff is a linear function of the difference between the stock price and the strike price. A Variance Swap's payoff is a linear function of the difference between the realized variance and the strike variance.

The former is directionally dependent; the latter is directionally neutral.

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