What Does a Flat Volatility Curve Imply about Market Expectations?

A flat volatility curve implies that the market expects future volatility to be the same regardless of the strike price or the time to expiration. This suggests that the market does not anticipate any significant, sudden price movements (crashes or spikes) that would disproportionately affect OTM options.

A truly flat curve is rare, but it is the theoretical outcome of the Black-Scholes-Merton model.