The Term Structure of Volatility reflects how expected volatility changes across different option maturities, offering crucial insights for traders. The curve can take shapes like Contango, where longer-term options have higher implied volatility, or Backwardation, where short-term options are more volatile.
Understanding these shapes helps traders anticipate market sentiment, whether it’s calm or stressed. By analyzing the term structure, traders can better position themselves for potential market moves and manage risks more effectively.
