The Curve · Shapes
Free to readContango vs. Backwardation: What the Slope Is Telling You
A volatility term structure only ever takes a handful of shapes. Learn the four, and you can read any curve in two seconds.
The whole skill of reading the term structure comes down to recognizing four shapes. Each one is a sentence the market is speaking about where it sees risk. Here they are — with a labeled diagram, a real example, and the one move each shape rewards.
Contango
Long-dated VolDex sits above the front. The normal, calm-market shape — the market expects more uncertainty the further out it looks. Example: SPY through 2024's quiet stretches.
Backwardation
Front-month VolDex spikes above the back. A stress signal — acute near-term risk the market expects to subside. Example: SPY, Aug 5, 2024; March 2020.
Humped (event kink)
One tenor pokes above its neighbors — an event priced into the expiration that captures it. Example: a single name into earnings week, or the curve around an FOMC date.
Transition
Little slope in either direction. The market is repricing — often the handoff between calm and stress, or the late stage of a selloff. Example: a tape that's just absorbed a shock.
Read the slope, not the height. A high curve in clean contango is calmer than a lower curve that just inverted. TermDex® turns whichever of these four shapes you're looking at into a single number, so you can track the regime over time instead of eyeballing it.
How the shapes move
These aren't fixed categories — a healthy curve lives in contango and only flips to backwardation under genuine stress, usually before the headline. The humped shape is the odd one out: it's not a regime, it's a single event sitting on the calendar. And flat is what you see in the doorway between regimes. Watch the front of the curve; it moves first.
Free to read. Spot these shapes live on any plan — ETF Analytics (all ETFs), ETF + Equities (single names), Everything (history & CSV).
See plans →Your next step
Open the live tool, pick an underlying, and name the shape before you read anything else. Then overlay a week ago to see which way it's moving.
Open the VolDex® Term Structure tool → Read: the pillar → Read: how to read the tool →Educational content from Nations Indexes. VolDex® and TermDex® are registered marks of Nations Indexes. Diagrams are schematic illustrations of curve shape; examples describe how the options market priced risk on the dates noted and are not guarantees of outcomes. Nothing here is investment advice.