How to chart implied volatility term structure

What is IV term structure?

The implied volatility term structure shows at-the-money (ATM) implied volatility plotted against option expiry dates. It reveals how the market prices uncertainty over different time horizons.

In a normal market, the term structure slopes upward: longer-dated options have higher IV because more can happen over more time. This is analogous to the yield curve — more time means more uncertainty, which commands a premium.

When the term structure inverts

Before significant events — earnings announcements, FOMC decisions, elections — the term structure inverts. Near-term IV spikes above longer-term IV because the market is pricing a specific, imminent event that will resolve uncertainty.

After the event, the term structure snaps back to its normal upward slope. This 'crush' in near-term IV is one of the most predictable patterns in options markets and forms the basis of many volatility trading strategies.

Reading the shape for trading signals

Steep upward slope: Calm near-term but uncertainty about the future. Often seen in low-VIX environments.

Flat term structure: Uniform uncertainty across all horizons. Often seen during sustained market stress (the market is uncertain about everything, not just one event).

Inverted (near > far): A specific near-term event is dominating pricing. The steepness of the inversion indicates how much of a move the market expects.

Humped: Peak IV at an intermediate expiry. This often occurs when a specific event falls between two expiry dates, pulling IV higher for both surrounding expiries.

Building in Quadesto

Upload options chain data with columns for expiry, strike, and implied_volatility. Quadesto extracts ATM IV for each expiry date and plots the term structure curve. Multiple snapshots can be overlaid to show how the term structure evolved through an event.