IV Term Structure Anomaly Detector

What is IV Term Structure?

The implied volatility term structure describes how IV varies across different expiration dates for the same underlying. In normal conditions, options markets exhibit contango — longer-dated options carry higher IV than near-term options, reflecting greater uncertainty over longer time horizons. When this relationship breaks down, it can signal tradeable anomalies that calendar spread strategies are designed to exploit.

Anomaly Types

• Inversion (Near > Far): Near-term IV exceeds far-term IV, creating a backwardated term structure. Outside of known catalysts, inversions are unusual and often revert. They suggest the market is pricing in short-term risk that may be overstated, presenting opportunities to sell near-term and buy far-term volatility via calendar spreads.
• Steep Contango (Far >> Near): Far-term IV is significantly higher than near-term IV, beyond what is historically normal. This can indicate the market expects future uncertainty to ramp up, and may present opportunities to buy near-term options at a discount relative to the term structure.
• Event Compression: An earnings announcement or other catalyst creates a sharp spike in near-term IV relative to post-event expirations. While this is expected behavior around events, extreme compression levels (high z-scores) suggest the event risk premium may be overstated or understated.

Trading Implications

• Calendar Spreads for Inversions: When near-term IV is elevated above far-term IV, selling the near-term expiration and buying the far-term expiration captures the reversion. The ideal setup combines a high z-score (statistical anomaly) with no obvious catalyst explaining the inversion.
• Using the Z-Score: The z-score measures how many standard deviations the current slope deviates from its historical average. Values above 2.0 indicate strong anomalies; values above 1.5 are worth monitoring. Always check the earnings calendar and news before trading — a high z-score near earnings may be justified.
• Event Compression — Opportunity vs Risk: Pre-earnings IV compression creates large vega differences between expirations. This can be profitable for experienced traders who understand post-earnings IV crush, but carries significant gamma risk through the event. Use defined-risk strategies and size positions conservatively around events.

Key Metrics

• Slope (7/30): The difference between 7-day and 30-day implied volatility. Negative values indicate backwardation (near > far); large positive values indicate steep contango.
• Historical Average: The rolling average slope for this symbol, providing a baseline for what is "normal" term structure behavior.
• Z-Score: Standard deviations from the historical average slope. Measures how anomalous the current term structure is relative to recent history.
• Earnings DTE: Days to the next earnings announcement. Critical context — term structure anomalies near earnings are often event-driven rather than mispriced.