Define “Term Structure of Volatility” in Crypto Options.
The term structure of volatility, also known as the volatility curve, is the relationship between the implied volatility of options and their time to expiration. It is plotted as a curve where the x-axis is time to expiration and the y-axis is implied volatility.
A rising curve (contango) means longer-dated options have higher IV, and a falling curve (backwardation) means shorter-dated options have higher IV.
Glossar
Implied Volatility
Expectation ⎊ This value represents the market's consensus forecast of future asset price fluctuation, derived by reversing option pricing models using current market premiums.
Term Structure
Volatility Structure ⎊ Term Structure refers to the graphical representation or data set showing the relationship between the implied volatility of options and their time to expiration, holding the strike price constant.
Term Structure of Interest Rates
Concept ⎊ The term structure of interest rates describes the relationship between the yield on a debt instrument and its time to maturity.
Time to Expiration
Decay ⎊ Time to Expiration, within cryptocurrency options and financial derivatives, represents the remaining lifespan of a contract before its termination and potential exercise or assignment.