Variance Swap Fair Value
Canonical definition, formula, interpretation, and API reference.
Definition
Fair variance per expiry computed from SVI integration. Used for variance swap pricing.
Formula
Fair Var = (2/T) x integral [C(K)/K^2 + P(K)/K^2] dK
Integrated across SVI-fitted option prices.
Inputs
SVI-fitted surfaceforward pricestime
Output
variance_swap_fair_values per expiry
Interpretation
- Fair > realized: vol sellers have edge
- Fair < realized: vol buyers have edge (unusual)
- Used by institutional desks for var swap pricing
API Reference
Endpoint
GET /v1/adv_volatility/{symbol}
Tier
Alpha+
Response field
variance_swap_fair_values[]
Why Variance Swap Matters for Trading
TL;DR
A variance swap pays realised variance minus fair variance. It's the cleanest direct exposure to vol - no delta, no gamma, pure vol.
- What it measures
- An OTC contract paying RV² - K², where K is the fair-variance strike derived from the option chain.
- What it signals
- The market's model-free forecast of future realised variance.
- Why we measure it
- Options give you vol exposure contaminated with delta, gamma, and time. Variance swaps give you pure vol.
- Who uses it
- Institutional vol desks, hedge funds, macro PMs. ALPHA TIER.
How to read Variance Swap
Variance swap premium (sellers)
- Fair-strike above realised
- Sellers collect variance risk premium
- Structural short-vol edge
- Similar mechanics to VRP
Good for: systematic variance sellers
Variance swap discount (buyers)
- Fair-strike below realised
- Buyers profit on surprises
- Event hedges
- Long-vol tail protection
Good for: hedge buyers, event setups
Fair-strike ≈ realised
- No structural edge
- Trade direction or skew
- Pure vol bet fails
- Atypical regime
Fair
Rules of thumb
- Variance is directional through volatility. Short variance is equivalent to short vol - but with cleaner exposure (no gamma or theta).
- Pair with variance surface. Fair strike is derived by integrating the variance surface.
- Institutional-only. OTC contracts; not retail-accessible directly.
- Blow-up risk without hedge. Unhedged short variance has uncapped loss - same as unhedged short options.
- Alpha-tier signal. FlashAlpha computes fair strikes off the SVI fit - Alpha tier only.
Related Concepts
Ship faster
Live for 6,000+ US symbols. One API call, sub-200ms.
Stop scraping chains and coding Black-Scholes from scratch. FlashAlpha computes GEX, DEX, VEX, CHEX, 15 BSM Greeks, SVI surfaces, max pain, VRP and more - with tiered freshness (Free 15-min cache, paid tiers as low as 15s). Free tier, no credit card required.
Free · 5/day
Single-expiry GEX (equities), key levels, gamma flip, 15 BSM Greeks. No card.
Basic · 100/day
DEX, VEX, CHEX, full max pain, plus ETF & index symbols.
Growth & Alpha
Full-chain GEX, 0DTE & flow (Growth); SVI surfaces, VRP, directional VRP (Alpha).