Volatility Term Structure - How IV Changes Across Expirations

Reviewed by Leon Moyer - Published October 9, 2026 - Last reviewed October 9, 2026

The volatility term structure is the pattern of implied volatility across the expirations of one underlying, usually read at the at-the-money strike. When it slopes upward, longer-dated options carry higher implied volatility; when it is inverted, near-term options carry more.

Volatility Skew compared strikes within one expiration. The term structure is the other dimension: one strike, many dates. Together they form the volatility surface, the full grid of implied volatilities a chain carries.

What is the volatility term structure?

Pick the at-the-money strike, read its implied volatility in each expiration, and plot those numbers against days to expiration. That line is the term structure.

Each point answers a different question. A 7-day option's implied volatility is the market's estimate of movement over the next week; a 180-day option's covers half a year. A stock can be expected to be calm over six months and jumpy this week, or the reverse, so the numbers rarely match.

Cboe publishes this curve for the S&P 500 on its VIX term structure page, which shows expectations of market volatility "conveyed by S&P 500 (SPX) stock index option prices" out to each monthly expiration.

What is the difference between an upward sloping and an inverted term structure?

• Upward sloping (contango). Near-term implied volatility is lower than longer-term. This is the usual shape in calm markets. One explanation is that volatility tends to revert to a long-run average: when it is low today, the market prices some chance of a rise later. Longer-dated options also carry more exposure to events nobody can yet name.
• Inverted (backwardation). Near-term implied volatility is higher. Something is expected soon: an earnings report, a court ruling, a product launch, or simply a market already in a selloff.

The words come from futures markets. Cboe describes VIX futures as in contango when "near term VIX futures are cheaper than longer term VIX futures" and noted in 2022 the curve had been in contango "more than 80% of the time since 2010," with backwardation appearing "when near-term market conditions have more uncertainty than the longer term" (Cboe: Is VIX Backwardation Necessarily a Sign of a Future Down Market?). VIX futures are not the same as single-stock option implied volatility, but the shapes and their usual causes carry over.

The calculator's Term setting draws a smooth curve. A real earnings inversion is usually a step: the expiration just after the report jumps while later ones barely move.

How does the term structure change option prices?

The term structure moves the price of every expiration except the anchor. Here is a single 90-day option under all three shapes.

The 90-day XYZ 50 call costs $324 with a flat 30% curve, $344 when the curve slopes upward to 32.1%, and $283 when it is inverted to 25.8%. The stock, strike and days are identical; only the curve differs.

That spread of $61 matters for any position spanning two expirations. Calendar and diagonal spreads, covered in Course 3's Calendar Spread Explained and Diagonal Spread Explained lessons, buy one expiration and sell another, so they are directly a trade on the shape of this curve.

How do you read an earnings date in the term structure?

An expiration that includes a scheduled event carries the event's expected move inside its implied volatility. Because implied volatility is quoted as an annualized rate, one big day packed into a short expiration lifts its implied volatility a lot, while the same day spread across a longer expiration lifts it less.

You can separate the two with forward volatility: the volatility the market implies for the period between two expirations. In one sentence: forward volatility = the square root of [(long IV squared x long days - short IV squared x short days) / (long days - short days)].

This is the arithmetic behind the IV crush covered in Course 1's IV Crush After Earnings lesson: after the report, the near expiration's implied volatility tends to fall toward the forward level, because the event it was pricing has passed. A trader who buys the 7-day option at 60% needs the stock to move enough to beat that drop. A real forward estimate is rough: it assumes the variance of each period adds up, and the bid-ask spread on short-dated options can be wide.

How do traders use the term structure?

• Spot the event. A single expiration standing well above its neighbors usually has an event inside it. Find it before trading that expiration.
• Choose the expiration deliberately. A trade that does not need the event can often use an expiration before it, or one long enough that the event is a small part of its price.
• Match the curve to time spreads. An inverted curve makes the near expiration rich relative to the far one; an upward-sloping curve does the opposite.
• Watch the market's curve. Backwardation in VIX futures has often appeared during broad market stress, when hedging is in short-term demand; the Cboe article above cites 2008, 2011, late 2018 and 2020, but notes it does not reliably predict a fall.