--- @type: "Article" type: "Support" title: "Volatility Term Structure" locale: "en" inLanguage: "en" url: "https://longbridge.com/hk/en/support/topics/marketoverview/c6bq4w.md" region: "hk" parent: "https://longbridge.com/hk/en/support.md" category: "Market overview" category_slug: "marketoverview" slug: "c6bq4w" description: "I. What is the Volatility Term Structure?Simply put, the volatility term structure describes the distribution of implied volatility (IV) for the same underlying" datePublished: "2026-11-09T04:09:27.000Z" dateModified: "2026-11-09T06:23:26.000Z" author: @type: "Organization" name: "Longbridge" publisher: name: "Longbridge" url: "https://longbridge.com" workTranslation: - inLanguage: "zh-CN" url: "https://longbridge.com/hk/zh-CN/support/topics/marketoverview/c6bq4w.md" - inLanguage: "zh-HK" url: "https://longbridge.com/hk/zh-HK/support/topics/marketoverview/c6bq4w.md" generator: "portal-rs" --- # Volatility Term Structure > [Help Center](https://longbridge.com/hk/en/support.md) / [Market Data and Trading](https://longbridge.com/hk/en/support/category/marketdataandtrading.md) / [Market overview](https://longbridge.com/hk/en/support/category/marketdataandtrading.md#marketoverview) **I. What is the Volatility Term Structure?** Simply put, the volatility term structure describes the distribution of implied volatility (IV) for the same underlying asset across different expiration months (terms). If you plot the different expiration dates on the horizontal axis and the corresponding implied volatilities on the vertical axis, the resulting curve is the term structure curve. Depending on market expectations, this curve typically presents two basic shapes: **Upward sloping (low near-term, high long-term):** This means that as the expiration date extends, the implied volatility of the options gradually climbs (near-month < far-month). **Downward sloping (high near-term, low long-term):** This means that as the expiration date extends, the implied volatility of the options gradually decreases instead (near-month > far-month). **II. What is the purpose of the term structure?** Observing the term structure serves two main purposes: **Gaining insight into market expectations:** The market often prices in recent events (such as earnings releases, macroeconomic data announcements, or sudden events). If short-term sentiment is panicked or faces extreme uncertainty, near-month implied volatility will be pushed higher. Conversely, if the market expects greater turbulence in the future, far-month implied volatility will be higher. **Constructing strategies and seeking arbitrage opportunities:** Because the rate of time decay and the magnitude of volatility changes differ for options, "abnormal" shapes in the term structure (especially when extremely skewed) often breed trading opportunities. We can use this to construct a **Calendar Spread**, waiting for the volatility curve to revert to its normal state to profit. **III. Specific Application: How to construct a calendar spread based on the shape?** The core logic of a calendar spread is to "utilize the differences in sensitivity to time and volatility among contracts of different months." The basic principle is: short overvalued options, long undervalued options, and earn the difference from time decay and volatility convergence. For the two different term structure shapes, the specific strategy construction is as follows: **Scenario 1: When the term structure is \[Downward Sloping\] (Near-month > Far-month)** **Market speculation:** The current market is extremely nervous about short-term volatility (or recent events), giving near-month options an excessively high premium, but expects the market to calm down in the future. **Strategy construction: Long Calendar Spread** **Sell (short) near-month options:** Because near-month implied volatility is extremely high, option prices are expensive, and as expiration approaches, time value (Theta) decays at the fastest rate. As the seller, we can quickly harvest their time value and bet on their implied volatility falling back. **Buy (long) far-month options:** At the same strike price, buy far-month options as protection, because far-month implied volatility is relatively lower and cheaper. **Profit logic:** If the underlying asset price doesn't change much by near-month expiration (staying near the strike price), the near-month high-premium options expire worthless or are closed out at a low price, while the far-month options still retain most of their time value. Thus, you earn profits from the decline in near-month implied volatility and the passage of time. **Scenario 2: When the term structure is \[Upward Sloping\] (Near-month < Far-month)** **Market speculation:** The short-term market is relatively calm, but the market expects greater uncertainty or amplified volatility in the future (e.g., in a few months). **Strategy construction: Short Calendar Spread** **Buy (long) near-month options:** Near-month implied volatility is low, and option prices are cheap. **Sell (short) far-month options:** Far-month implied volatility is high, and option prices are relatively expensive. **Profit logic:** Near-month options lose time value extremely fast, while far-month options lose time value more slowly. As the near-month contract approaches expiration, its value will quickly drop to zero; as long as the high volatility expectation for the far month still exists (or far-month implied volatility rises further), the short far-month options you hold will still maintain relatively high value. This strategy earns the expectation gap from accelerated time decay in the near month and rising volatility in the future. ## Related articles - [Crypto Trading FAQs](https://longbridge.com/hk/en/support/topics/marketoverview/faq.md) — Market overview - [Options Extended Hours FAQs](https://longbridge.com/hk/en/support/topics/marketoverview/4jpdot.md) — Market overview - [Option Trading Statistics](https://longbridge.com/hk/en/support/topics/marketoverview/2mi6gv.md) — Market overview - [Understanding virtual asset indicators](https://longbridge.com/hk/en/support/topics/marketoverview/99xxdf.md) — Market overview - [Introduction to Virtual Asset Transaction Record](https://longbridge.com/hk/en/support/topics/marketoverview/va_trade_types.md) — Market overview --- > **Disclaimer: This article is for reference only and does not constitute any investment advice.**