Forward Volatility

Forward volatility is the expected volatility of an asset over a future time period, calculated from the current volatility term structure. It is distinct from the implied volatility of a single option, as it represents the market's forecast for a specific interval in the future.

For example, a trader might look at the forward volatility between three months and six months from now. This is useful for pricing complex derivatives or for betting on the future evolution of volatility.

In crypto, forward volatility can be very informative, as it reflects the market's anticipation of future events, such as protocol upgrades or macro-economic changes. It requires a solid grasp of the volatility term structure and how to extract information from it.

Forward volatility is a more advanced concept that allows for more precise trading and risk management. It helps traders position themselves for expected shifts in market volatility.

By analyzing forward volatility, participants can gain a deeper insight into the market's long-term expectations.