Hermēs DocumentationVolatility Term Structure
The same name quotes different IV at different expiries — near vs far, what an inversion means, and how to read it with the VIX family in HermesGEX.
One-line positioning
IV is not a single number. The same name quotes different IV at different expiries. Connect those IVs across time and you get the term structure.
Mantra: the curve slopes up when calm, inverts in fear.
Near IV < far IV (contango) = normal, no panic; near IV > far IV (backwardation / inversion) = short-dated insurance is being bid, something is happening right now.
Section 1: Two shapes
| Shape | Look | Mechanistic meaning | Typical environment |
|---|---|---|---|
| Contango (normal) | Near low, far high, sloping up | Nothing scary near-term, time uncertainty far out | Calm / grind-up |
| Backwardation (inverted) | Near high, far low, sloping down | Short-term risk being hedged frantically, insurance dearest now | Selling off / event imminent |
Why it slopes up when calm: the longer the horizon, the more uncertainty, so far-dated insurance is naturally pricier. That makes an inversion abnormal — the curve only flips when "the next few days" outweighs "the next few months."
Section 2: Three thermometers you can read directly
HermesGEX's market-context gives you exactly this short / mid / vol-of-vol set:
| Metric | What it measures | How to use it |
|---|---|---|
| VIX9D (~9 days) | Short-end IV | Above VIX = inverted term structure, short-term fear |
| VIX (~30 days) | Mid-end IV | Overall fear temperature, the "baseline" |
| VVIX | The volatility of VIX itself | A spike = even volatility is moving violently, tail hedges being bid |
Spot an inversion at a glance: is VIX9D above VIX?
VIX9D > VIX → short end richer than mid → inverted term structure → the market is paying up for "the next few days." This usually means you are already inside a short-gamma / amplified-volatility environment, not about to enter one.
Section 3: How traders use it (mechanism, not bottom-fishing)
| Term signal | Mechanistic meaning (conditional) | How to pair it with GEX |
|---|---|---|
| Inversion (VIX9D > VIX) | Short-dated insurance bid, likely a sell-off already underway | Usually a short-gamma environment too: don't fade it, wait for the regime to flip back |
| Steep contango | Far-dated uncertainty (a known event sits ahead) | Check that event in Event Mode — the σ bands widen there |
| Inversion easing (VIX9D falling toward VIX) | Short-term fear receding | Often coincides with the gamma regime flipping back Short → Long; watch the main-chart regime tile turn green |
We don't say "inversion eased, so buy the bottom." We say: when an easing inversion + a green main-chart regime tile + price reclaiming above HVL all show up together, the premise for amplified volatility is disappearing. Whether you enter is your risk management.
Section 4: 👀 Where to see it in HermesGEX
| What you want | Where | How to read it |
|---|---|---|
| Short vs mid (inverted?) | market-context · VIX9D / VIX | VIX9D > VIX = inverted |
| Vol of vol (tail bid) | market-context · VVIX | Spike = tail hedges being bid |
| A known event's term impact | Main chart · Event Mode | As the event nears, the σ bands widen = higher vol priced for that window |
| Whether the inversion matches the gamma regime | HuntingFlow main-panel regime tile | Inversion + red tile = a textbook amplified-volatility environment |
Section 5: Two traps
1. Inversion ≠ an immediate bottom. An inversion can persist for days while price keeps falling. It's an "environment temperature," not a timing signal.
2. High VIX ≠ bearish. Same as the previous chapter: VIX is 30-day IV indexed, the price of movement, carrying no direction.
Next steps
Term structure slices IV along time. The next chapter slices IV along strike — that's skew.
Chapter mantra: upward slope is normal, inversion is abnormal; VIX9D > VIX = short-term fear; an inversion is a thermometer, not a buy button.
Frequently asked questions
What is the volatility term structure?
It's the curve of implied volatility across different expiries for the same name. In calm markets the near term is low and the far term high (contango, upward sloping); in fear the near term overtakes the far term (backwardation, an inversion), meaning the market is bidding up insurance for the immediate, short-term risk.
What are VIX, VIX9D and VVIX?
VIX is roughly 30-day SPX implied vol, VIX9D is the ~9-day short end, and VVIX is the volatility of VIX itself (vol of vol). VIX9D above VIX = an inverted term structure = short-term fear being priced; a VVIX spike = even "volatility itself" is now moving violently.
Is an inverted term structure a bottoming signal?
No. An inversion only states a mechanistic fact — short-dated insurance is more expensive than long-dated right now, the market is paying up for immediate risk. It often coincides with a sell-off already in progress, but by itself predicts nothing about the bottom. Treat it as an environment thermometer, not a buy button.
Implied vs Realized Volatility
IV is the market's quote for future movement, RV is what actually happened, and their gap (the variance risk premium) is the core rent of the options market — plus how to read it inside HermesGEX.
Volatility Skew
Why IV differs across strikes at the same expiry — why puts cost more than calls, what steepening/flattening means, and how to read it with the C/P Skew card in HermesGEX.