Term and Off-Term Volatility Quotes Reflect Expiry Alignment and Hedgeability

Summary

The document clarifies desk terminology for term and off-term volatility. It explains that the distinction concerns whether a product's expiry aligns with a major expiry date in the market, rather than whether its delivery date differs from its expiry. An example is a volatility product expiring at an unusual time of day: that would be off-term, while one expiring alongside a major listed contract would be term volatility.

The practical pricing point is that desks may quote wider margins or spreads for off-term products because they are harder to hedge. The explanation is a short trading-desk convention, not a formal definition applicable to every market or product. It does not specify how much wider a quote should be, quantify hedge costs, or discuss how settlement and contract specifications can affect a particular instrument. The central distinction is expiry alignment and the resulting ease of hedging.

Key ideas

• Term volatility refers to products whose expiry aligns with a major market expiry.
• An expiry at an unusual time or date may be described as off-term.
• Off-term products can be harder to hedge and may therefore receive wider desk spreads or margins.
• The terminology is presented as desk usage and may depend on the product and market.

Tags

# What is 'off term' volatility and 'term' volatility?


# What is 'off term' volatility and 'term' volatility?












I see these terms being used on the floor, but don't really understand precisely what is being referred to. One colleague asserted that an 'off term' volatility is for an option whose delivery date doesn't match the expiry date, but this doesn't make sense given that the delivery date is irrelevant for volatility - but rather the expiry date determines volatility.

## Answer by Lliane (score 1, accepted)

https://quant.stackexchange.com/a/35638

I think what your colleague meant is that the expiry date of the product doesn't match THE expiry date of the market. For instance a volatility product that would expire at 10:42 am on a random day would be off term. One that expires at the same time than a major listed contract would be term vol.

Your desk will quote off term products with a higher margin/spread because they are harder to hedge.

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