The answer here states:
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.
Consider say a March COMEX Gold Option (which has an April COMEX Gold Futures underlying), and say we are trying to delta hedge an OTC Gold Option over an April COMEX Gold futures contract expiring at the start of February (so 'off term' using the above terminology).
Why would it be more difficult to hedge the OTC Gold Option compared to the on exchange March COMEX Gold Option (they both have the same underlying). Could you just delta hedge the OTC option as per normal up until its expiry, or is there some assumption in the Black Scholes model that invalidates the price relationship between the underlying and an option that expires earlier?