From February to April 2026, realised volatility ran above India VIX on about two in three sessions
The contract pays a variance notional times the gap between realised variance and the strike variance:
payoff = N x (RV^2 - K^2)
RV, K in volatility points
Realised variance is the sum of squared daily log returns, annualised, so one large move counts far more than several small ones. A long holder gains when the index moved more than the strike implied, and loses when it moved less.
The payoff is linear in variance, not in volatility, so a variance swap can be replicated with a strip of out of the money options weighted by one over the strike squared. That result is the basis of the VIX formula. The fair strike is the expected variance under the option prices, which is why the strip matters more than the implied volatility of any single option.
The chart shows the kind of stretch in which a long variance holder is paid. From February to April 2026, the realised volatility of the previous twenty sessions ran above India VIX on about two in three sessions. Realised volatility here looks back and a swap's payoff looks forward, so this is one episode in one file. It illustrates the gap and is not a swap's profit and loss, or evidence of a premium.
Check the contract terms before using the arithmetic. The strike is quoted in volatility points, but the payoff is on variance, which is the volatility squared. Day count, sampling of closes and the window all change the answer, and the variance risk premium page explains what the average gap means for option sellers.
Before you trade. Derivatives trading carries a high risk of loss. SEBI's study "Profitability of Individual Traders in the Equity Derivatives Segment (FY25 to FY26)" (August 2026) found that 87.7% of individual traders in equity F&O made net losses in FY26, with aggregate net losses of Rs 91,685 crore. Read the SEBI study