Implied Volatility Term Structure

The implied volatility term structure is the relationship between the implied volatility of options with different expiration dates. It shows how the market expects volatility to change over time.

In a normal market, longer-term options may have different volatility levels than shorter-term options due to expected events or seasonal trends. This structure provides insights into market participants' expectations for future stability.

Traders use the term structure to identify opportunities in calendar spreads and to adjust their risk exposure across the time horizon. It is a fundamental component of the volatility surface and essential for accurate derivative pricing.