How Does a Change in the Time to Expiration Affect the Implied Volatility? ⎊ Path

How Does a Change in the Time to Expiration Affect the Implied Volatility?

As the time to expiration decreases, the implied volatility of the option typically increases, especially for at-the-money options. This phenomenon, known as the "term structure of volatility," reflects the idea that near-term uncertainty is often higher than long-term uncertainty.

However, in periods of high market stress, the near-term implied volatility can spike dramatically.

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Why Does Gamma Increase Dramatically for Near-the-Money Options Close to Expiration?

Glossar

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.

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.