What is IV term structure?

IV term structure is implied volatility plotted across expiration dates, from nearest-term to longest-dated. The slope reveals what the market expects volatility to do over time — upward-sloping is normal, flat or inverted signals imminent event risk.

Why do humps appear in the term structure?

A hump on a specific expiry reflects concentrated event risk around that date — FOMC meetings, CPI releases, Deribit monthly expiries (last Friday), major token unlocks, or ETF-related catalysts. Traders bid up IV on the expiry capturing the event, creating a local peak.

Forward IV isolates the implied volatility for a specific future period (e.g., the 30-day vol starting 30 days from now). It's computed from the spread between two expiry IVs. Near-expiry forward IV is notoriously unstable due to gamma — Sharpe uses forward-variance interpolation across adjacent tenors to stabilize it.

How do traders use term structure?

Calendar spreads — sell expensive near-dated vol, buy cheaper long-dated vol when a hump appears. Volatility arbitrage — trade the curve steepening or flattening by combining multiple expiries. Regime identification — an inverted curve is a high-conviction short-vol signal that often precedes mean reversion post-event.

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IV Term Structure — Crypto Options