BackQuant Glossary
IV Term Structure
The curve of implied volatility plotted across expiries at a fixed moneyness. Upward-sloping (contango) is the normal state. Downward-sloping (backwardation) signals an imminent event or active market stress. Term-structure shifts often front-run direction.
Related terms
Backwardation
A market structure in which near-dated contracts trade at higher prices (or higher implied volatilities) than longer-dated contracts. In futures, backwardation often signals near-term scarcity. In options IV term structure, backwardation signals an imminent catalyst or active stress in the market.
Contango
A market structure in which longer-dated contracts trade at higher prices (or higher implied volatility) than nearer-dated. In futures, contango is the normal carrying-cost state. In options IV term structure, contango is the default and reflects cumulative uncertainty over time.
Implied Volatility (IV)
The market’s forecast of future price volatility, baked into option prices. Calculated by inverting an option-pricing model from observed prices. IV is annualized; an IV of 60% implies a one-sigma annual move of 60%. Higher IV = more expensive options.
Index Price
A composite reference price calculated from spot prices across multiple exchanges. Index prices are used for funding calculations, margin requirements, and option settlements. They smooth over single-venue manipulation or outliers.
Intrinsic Value
The amount an option would be worth if it expired right now. For a call, max(spot − strike, 0). For a put, max(strike − spot, 0). The remainder of an option price is time value, which decays toward zero by expiry.
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