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Volatility Term Structure

OVERVIEW

The volatility term structure is a graphical representation of implied volatility across different expiration dates for the same underlying asset at a fixed strike price. Tapeboard renders this curve in real time, allowing traders to identify structural mispricings, execute calendar spreads, and monitor regime shifts between contango and backwardation.

Note

The term structure reflects how the market prices expected risk over time. It does not account for volatility skew — the variation of implied volatility across different strike prices at the same expiration.

Curve Shape Condition Interpretation
Upward sloping Contango Longer-dated options carry higher IV than near-term options
Downward sloping Backwardation Short-term fear spike drives front-month IV above back-month IV
Flat Neutral Market pricing uniform risk across tenors

HOW IT IS CALCULATED

Tapeboard constructs the term structure by extracting the implied volatility of at-the-money (ATM) call and put options for sequential expiration cycles: 30-day, 60-day, 90-day, and 180-day.

The slope between any two tenors is calculated as:

Slope = IV(Long-Term) − IV(Short-Term)
  • Positive slope → contango
  • Negative slope → backwardation

Tapeboard fits a cubic spline to the discrete data points to produce a smooth, continuous curve suitable for pricing non-standard or exotic expirations.

Tip

Use the slope value as a quick regime indicator. A steep positive slope in contango signals an opportunity to sell expensive front-month volatility and buy cheaper back-month volatility via a short calendar spread.

WORKED EXAMPLE

Assume SPY is trading at $500.

Expiration Implied Volatility
30-day ATM 15%
90-day ATM 17%
180-day ATM 18%

The curve is in contango. The 180-day premium over the 30-day is 18% − 15% = 3%.

After a macroeconomic shock:

Expiration Implied Volatility
30-day ATM 35%
180-day ATM 22%

The curve inverts to backwardation. The slope is 22% − 35% = −13%, signalling acute short-term fear priced into the market.

FEATURES

Feature Description
Real-time curve rendering Plots IV across all active expiration cycles for a selected underlying
Slope calculator Displays the front-to-back spread between any two selected tenors
Cubic spline interpolation Smooths discrete data points into a continuous curve
Regime indicator Flags contango or backwardation automatically based on slope sign
Comparative overlay Overlays the current curve against historical term structures
VIX integration Correlates the equity term structure with VIX futures for arbitrage analysis

HOW TO USE

View the term structure for an underlying

  1. Open the Volatility panel in Tapeboard.
  2. Enter a ticker in the search bar (for example, SPY).
  3. Select Term Structure from the view selector.
  4. The curve plots automatically using the nearest ATM strikes for each expiration cycle.

Measure the slope between two tenors

  1. Click the first expiration node on the curve.
  2. Shift-click the second expiration node.
  3. The slope value and regime label appear in the data callout.

Enable cubic spline interpolation

  1. Open Settings → Curve Display.
  2. Toggle Spline Interpolation to on.
  3. The curve smooths between discrete expiration nodes.

Note

Implied volatility is path-dependent. A large directional move in the underlying before expiration alters option moneyness and can distort the displayed curve. Cross-reference the term structure with the volatility skew view for a complete picture.

KEYBOARD SHORTCUTS

Action Shortcut
Open volatility panel V
Switch to term structure view T
Select next expiration node →
Select previous expiration node ←
Toggle spline interpolation S
Overlay historical curve H
Reset curve to default view R
Export curve data to CSV Ctrl + E