Abstract: The expected returns of short maturity options are large and negative, implying a negative variance risk insurance premium. We find that the magnitude of this negative risk premium decreases monotonically with option maturity. Specifically, the risk premium becomes insignificant for maturities beyond 6 months, and the cost to insure the variance risk using long maturity options is 2 bps per month. In the context of a classical asset pricing model, this pattern suggests that variance betas should also decline with maturity because the risk premium is proportional to the factor loading. However, variance betas increase with option maturity, challenging a one-factor model of the variance risk. In particular, a one-factor model of the short-term variance risk (level) fails to explain the cross-section of option returns and is forcefully rejected by asset pricing tests. We identify a slope factor in the term structure of risk-neutral variances and find this slope crucial for explaining the cross section of option returns. When combined, the slope and level factors explain majority of the option return variations.