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Volatility
What Is the Term Structure of Volatility?
Volatility doesn’t just vary by strike — it varies by time to expiration too. That curve across expirations is the term structure, and its shape signals the regime.
NoVo Options Trading · 2026
The term structure of volatility is how implied volatility varies across different expirations — usually rising with time (contango), but inverting (backwardation) during stress. Its shape signals the volatility regime.
Contango: the normal state
Normally, longer-dated options have higher IV than near-dated ones (more time = more uncertainty) — an upward-sloping term structure (contango). This is the calm-market default, and it’s related to the VIX term structure and the VIX futures roll.
Backwardation: the stress signal
During market stress, near-dated IV spikes above longer-dated (immediate fear dominates) — an inverted, downward-sloping structure (backwardation). This is a classic fear/regime signal: when the front end of the vol curve exceeds the back, the market is pricing acute near-term risk. It often marks capitulation or crisis.
Contango (up-sloping) is calm; backwardation (inverted) is fear. The shape of the vol curve across time is a regime tell in one glance.
The takeaway
The term structure (IV across expirations) is normally upward (contango) and inverts (backwardation) in stress — a useful regime read. Combined with skew (IV across strikes), it forms the full volatility surface. For scalpers it’s context; for vol traders it’s central. See the VIX term structure for the tradeable version.
More on this: What Is the VIX Term Structure? Reading the Volatility Curve · What Is Vol of Vol? The Volatility of Volatility
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NoVo is a software tool for market analysis and for executing trades you initiate, not financial advice. This article is general education, not investment advice. Options trading involves substantial risk of loss, up to and including your entire capital. NoVo makes no guarantee of profit, win rate, or performance, and past results do not predict future outcomes. You are responsible for your own broker account, configuration, and trading decisions.