Abstract We develop a model-free measure of the variance premium by constructing option portfolios whose returns are highly correlated with realized stock variance. This effectively decomposes returns into realized variance minus implied variance. We apply this decomposition to document a novel quarterly cross-sectional continuation pattern in both realized variance and implied variance of individual stocks. Implied variance underanticipates the seasonality of realized variance, so options that performed well at quarterly lags continue to earn high returns in the future. Quarterly periodicity in realized stock variance only occurs on days with analyst earning revisions, suggesting an informational channel for this pattern. (JEL G12, G13, G40)

ABSTRACT This paper investigates the performance of option investments across different stocks by computing monthly returns on at‐the‐money straddles on individual equities. We find that options with high historical returns continue to significantly outperform options with low historical returns over horizons ranging from 6 to 36 months. This phenomenon is robust to including out‐of‐the‐money options or delta‐hedging the returns. Unlike stock momentum, option return continuation is not followed by long‐run reversal. Significant returns remain after factor risk adjustment and after controlling for implied volatility and other characteristics. Across stocks, trading costs are unrelated to the magnitude of momentum profits.