Reading the term structure across expiries
The volatility term structure is implied volatility plotted against time to expiration. It normally slopes gently upward, inverts in a selloff, and develops a sharp kink at the first expiry after a scheduled event. On Nike that kink was fifteen volatility points wide.
The skew is the curve across strikes. This is the curve across dates, and it is the more useful of the two for anyone whose main decision is which expiry to sell.
One chain, six expiries
Nike, June 3, stock at $74.20. Earnings June 26, after the close.
| Expiry | Days out | Earnings inside? | ATM IV | One-sigma move |
|---|---|---|---|---|
| Jun 6 | 3 | no | 24.0% | $1.61 |
| Jun 20 | 17 | no | 26.0% | $4.16 |
| Jul 3 | 30 | YES | 41.0% | $8.72 |
| Jul 18 | 45 | yes | 37.0% | $9.64 |
| Aug 15 | 73 | yes | 33.0% | $10.95 |
| Nov 21 | 171 | yes | 30.0% | $15.24 |
Three separate things are happening in that column and they are worth separating.
1. The gentle upward slope at the front
24 at three days, 26 at seventeen. In calm markets the near term is quieter than the far term, because the near term contains only the days you can nearly see and the far term contains everything that might go wrong. Contango, if you want the futures word for it.
2. The kink
26 at seventeen days, then 41 at thirty. Fifteen points, from one expiry to the next, on the same stock on the same morning.
The only difference between those two contracts is that June 26 falls inside the second one. That is the earnings print, priced.
Here is how to extract what the market thinks the print is worth. The June 20 contract carries 17 days of ordinary volatility. The July 3 contract carries 30 days, of which 29 are ordinary and one is the event. Total variance is additive over time, so the difference between the two, scaled, is the market's price on that single session. Do it on these numbers and the print is being priced at an event day worth roughly a 6 percent move on its own, with the remaining sessions at their normal 26.
You do not need to run that arithmetic to trade. You need to know that the 41 is one date, not a regime, and that it is why the IV rank your platform prints is misleading right now.
3. The decay back down
41, then 37, then 33, then 30. Every one of those expiries contains the June 26 print. What changes is how much else they contain. One event inside 30 days dominates the average. The same event inside 171 days is a rounding error, and the November contract settles near Nike's long-run level of about 30.
The long end of the curve is the closest thing to an answer to "what is this stock's volatility, really". It is the one reading that no single date can distort.
Backwardation, and what it means
The curve inverts in a crisis. Front-month goes above back-month, sometimes by a lot, because the panic is now and nobody believes it lasts a year. VIX futures did this in March 2020 and in every real dislocation before it.
For a seller, an inverted curve is the loudest signal on the screen and it says two opposite things at once. The front-month premium is spectacular. It is spectacular because the market is pricing genuine near-term chaos, and it is very often right. A short book entering that environment does not need more contracts on.
Picking an expiry off the curve
- Want the premium without the event: sell the last clean expiry. June 20 at 26 percent, expiring six days before the print. Smaller credit, no gap risk, and you get to reassess afterwards.
- Want the event premium: know you are buying a lottery ticket in reverse. July 3 at 41 percent pays roughly twice as much per day of exposure. You are being paid well for the one risk on the page that can move the stock 8 percent overnight.
- Do not sell the far-dated contract expecting the event premium. The August and November expiries also contain the print and pay almost nothing extra for it, while committing your capital for months. This is the trap: the event premium lives almost entirely in the first expiry after the date.
- Roll toward the kink, not through it. If you are already short something expiring before the print, rolling to the next expiry moves you from 26 to 41 and quietly changes what your position is. Sometimes that is the trade. It should never be an accident.
The habit worth forming
Before you sell anything, read two numbers off the chain: the nearest clean expiry and the first one containing the next event. On Nike that is 26 and 41. Those two numbers tell you the stock's ordinary volatility, the size of the event, and which expiry you are actually choosing between, and none of it can be corrupted by a spike eleven months ago.
OptionsKing scores every candidate strike on a deterministic 0 to 100 scale, blends that score with the return on the capital the trade ties up, and shows you the highest-ranked handful. There is no minimum score. How it works covers what the ranking does and does not tell you.
Questions people actually ask
What is the volatility term structure?
Implied volatility plotted against time to expiration for one underlying. It usually slopes gently upward in calm markets, inverts during selloffs, and shows a sharp step up at the first expiry containing a scheduled event.
Why is implied volatility higher on one expiry than the next?
Almost always because an event sits between them. Nike quoted 26 percent at 17 days and 41 percent at 30 days, and the only difference was that the June 26 earnings print fell inside the longer contract.
What does an inverted volatility term structure mean?
That the market expects more turbulence in the next few weeks than over the following year, which is the normal shape during a selloff. It offers the richest front-month premium of any environment and arrives with the risk that justifies it.
Which expiry should I sell before earnings?
The last one that expires before the print if you want the premium without the gap, or the first one after it if you have decided the event risk is acceptable. Far-dated expiries contain the same event and pay very little extra for it.
Sources
Rules and thresholds above were checked against these documents on August 4, 2026. Exchange and broker rules change. Confirm anything you are about to act on with your own broker.
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Do the math on your own trade
Every price in this article is an illustrative worked example, not a quote. Read Volatility for the rest of the series, and the disclaimer before you act on any of it. Selling options carries real risk of loss, and the loss can be far larger than the premium you collected.