Volatility Term Structure
The pattern of implied volatility across expiration dates for at-the-money options on the same underlying. Contango (the common shape) means longer-dated IV is higher than shorter-dated IV -- the market is pricing uncertainty about the longer horizon. Backwardation (less common, typical of crisis regimes) means shorter-dated IV is higher than longer-dated IV -- the market expects elevated near-term turbulence that will mean-revert. The term structure is one of three dimensions of the volatility surface alongside skew and smile.
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Related terms
American Option · Asian Option · Barrier Option · Basket Option · Butterfly Spread · Calendar Spread
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