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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.

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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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  • $\begingroup$ "One that expires at the same time than a major listed contract.." Do you mean that the option expires at the same time the underlying matures? Taking CME gold as an example, options expire the month before the contract month.. but surely these options would be considered 'term'? $\endgroup$ – Trent Di Feb 13 at 11:13
  • $\begingroup$ Let's say your CME expiry is on February 26th, March 26th, etc. off-term would be the volatility for an OTC contract expiring on February24th at 1:42 am for instance. $\endgroup$ – Lliane Feb 17 at 9:20
  • $\begingroup$ CME Expiry of the option or the futures contract underlying the option (I think you mean the former)? $\endgroup$ – Trent Feb 23 at 10:07

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