IV Term Structure
Canonical definition, formula, interpretation, and API reference.
Definition
How implied vol varies across expirations. Contango (far > near) is normal. Backwardation (near > far) signals stress.
Formula
near_slope_pct = (mid IV - near IV) / near IV
State: contango, backwardation, or mixed.
Inputs
ATM IV per expiration
Output
near_slope_pctfar_slope_pctstate
Interpretation
- Contango: far-dated higher IV - normal, calm
- Backwardation: near-dated higher IV - stress/event premium
- Mixed: near backwardation with far contango - around events
API Reference
Endpoint
GET /v1/volatility/{symbol}
Tier
Growth+
Response field
term_structure.near_slope_pct, far_slope_pct, state
Why IV Term Structure Matters for Trading
TL;DR
Term structure is the slope of IV across expiries. Contango (up-sloping) = calm. Backwardation (inverted) = stress.
- What it measures
- The shape of IV as a function of time-to-expiry - typically slopes up in calm markets, inverts in stress.
- What it signals
- The market's forecast of how volatility will change through time.
- Why we measure it
- Vol is mean-reverting but the path matters. Term structure is the market's path estimate.
- Who uses it
- Vol traders, calendar-spread sellers, VIX-term traders, macro managers.
How to read IV Term Structure
Contango (calm)
- Far IV > near IV
- Calendar-sell edge
- Short front-month premium works
- Typical positive gamma
Good for: calendar spreads, front-month premium sells
Backwardation (stress)
- Near IV > far IV
- Stress regime priced in
- Avoid naked short front
- Long-vol winning
Bad for: naked short front - good for: long front protection
Flat or mixed
- No dominant slope
- Regime in transition
- Reduce size on term trades
- Watch for resolution
Transition
Rules of thumb
- Slope direction matters more than absolute level. A 2% contango and a 10% contango both indicate calm - sign is what matters.
- Pair with VIX term structure. SPX term and VIX futures term usually move together.
- Backwardation is actionable. Inversions are rare and often mark regime shifts. Don't fade them on first print.
- Event-day front inversion is noise. Earnings and CPI inflate front-month IV temporarily. Back it out.
- Calendar sellers want steep contango. The steeper, the bigger the roll income - but the faster it collapses in stress.
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