Volatility Term Structure
How implied volatility changes from this week's expiry to the far months.
Definition
The volatility term structure is the curve formed by plotting implied volatility across option expiries for the same underlying, from the nearest weekly to the far monthly contracts. Its shape shows whether the market is pricing more risk into the short term or the long term.
Why it matters
The slope tells you where the market expects turbulence. An upward-sloping curve (contango), where far-dated IV is higher, is the normal calm-market state. A downward-sloping curve (backwardation), where near-dated IV is higher, signals an expected near-term shock such as results, the Budget, or an RBI decision. Calendar-spread traders trade exactly this slope, selling rich near-term IV against cheaper far-term IV.
Example
Suppose Nifty's weekly options imply 18% IV, the current-month implies 15%, and the next-month implies 14%. That descending shape is backwardation, hinting the market expects a near-term event to settle quickly, leaving later expiries calmer.
See it live
Compare IV across Nifty expiries on TradePulse's live option chain to read the term structure in real time.