Term Structure

Term structure charts plot the current IV indexes by delta for various maturities or expirations for an underlying over current and past periods.

Open

Enter in a US or Canadian equity ticker or index symbol in the search for symbol box or used the symbol browser tree to search for your desired instrument. Note, IV Index data is only available for US and Canadian stocks and indexes that have listed options. Once the underlying is selected you will see the ticker display in the right side of the dialogue. To remove the symbol, simply click the 'x' to the right of the ticker.

Open

(Tip: When using the symbol tree, the Stocks → By Exchange, Index, Sector etc. branches have ‘Options’ leaves that only display underlying securities that have listed options)

Now you can opt to plot the Term Structure using either maturity or expiration via the tabs found below.

By Maturity

Using ‘By Maturity', you can plot all of the virtual option expiration period's current at-the-money IV index against a selection of pre-set days back or a custom date. Without using a comparison, the default will apply all maturities which will yield the current underlying's term structure:

To remove any of the maturities, simply click on the button of the period you want to remove and reinsert the data.

To compare the current term structure to a date in the past, use any or all of the preconfigured date options: 1D (one day back), 1W (one week back), 1M (one month back), 3M (three months back) and 6M (six months back). Use the ‘Custom Date’ option to select a specific day.

The last customization that can be applied is the delta. Select an IV index delta from 5 to 95 to plot.

Once all selections have been, click insert and view the term structure by maturity. Implied volatility is plotted on the y-axis and the delta by maturity is plotted on the x-axis.

In the image below you can see the downward slope of the TSLA’s term structure by maturity, indicating market participants believe volatility will decrease in future. In such a case, a trader might be inclined to utilize a long calendar spread to capture the anticipated move in volatility.

By Expiration

Using the ‘By Expiration’ tab will allow you plot an underlying’s term structure using the option expirations. When ‘Expiration’ is selected, a drop down menu will be available where you can select a desired monthly or weekly expiry. Multiple expirations can be individually selected or you can select ‘All’ for all expirations, ‘Monthly’ for all monthly expirations and ‘Weekly’ for all weekly expirations. Use clear to remove your selections.

To compare the current term structure to a date in the past, use any or all of the preconfigured date options: 1D (one day back), 1W (one week back), 1M (one month back), 3M (three months back) and 6M (six months back). Use the ‘Custom Date’ option to select a specific day.

Now you can select the delta to be used for the expiration(s). By default, the 50 delta ‘at-the-money’ is selected but can be changed by clicking in the delta drop down menu.

Once all selections have been, click insert and view the term structure by expiration. Implied volatility is plotted on the y-axis and the the delta by expiration is plotted on the x-axis.

Volatility Forecasting

Term structure is one method to discover volatility divergence between different maturities or expirations that certain trading strategies can capitalize on. In the image below you can see the downward slope of the TSLA’s term structure by maturity, indicating market participants believe volatility will decrease in the future when comparing short term to long term maturities. In such a case, a trader might be inclined to utilize a calendar spread to capture the anticipated move in volatility.

Another way to analyze term structure is in the curve's shape over time, specifically around market events like earnings. Below, QQQ went from what is commonly considered a normal curve in green (near term options with lower IV readings) to an inverted curve (higher IV readings in near term maturities) within weeks surrounding earnings.

In a volatility environment like the one pricuted for QQQ above, owning short term option premium via outright options or long vega spread positions are advisable. By viewing term structure charts, investors or traders can then better position themselves by seeing how the different maturities react prior to, during and after market events.