An option only prices what can happen before it expires. That sounds obvious, and it has a sharp consequence in a market with expiries every day. A scheduled release belongs to some contracts and not to others, and the line between them is exact.
The first expiry after the event
Take a release due on a Wednesday morning. Tuesday’s option expires before it and carries none of it. Wednesday’s option contains the whole reaction and has only one day in which to hold it. That contract shows the event most clearly, because the event is most of what it has left.
Later expiries hold it too, diluted
Friday’s option also spans Wednesday morning, so it also holds the event. It holds two more ordinary days as well. Next month’s option holds the event and several weeks of ordinary days.
The event adds the same amount of expected movement to each of them. Spread over one day it lifts implied volatility a great deal. Spread over a month it barely shows. That is why the front of the curve jumps around events and the back stays calm, the pattern laid out in the VIX term structure.
Reading the step
Line up implied volatility by expiry and a scheduled event shows as a step. The contracts before it sit low. The first contract after it sits high, and the ones behind fade back down. The size of the step is the market’s price for that one event.
A calendar tells you an event exists. The step tells you how much the market cares. A release that produces no step is one the market does not expect to matter. Event volatility and scheduled catalysts covers the general idea.
After the event the step disappears
Once the result is known, the first expiry after the event loses the extra value and the step flattens. The longer expiries lose the same amount of expected movement, which for them is a small share, so they hardly change. This is the uneven fall described in the post-event crush.
Why it matters for a spread across dates
A position with two expiries can have the event in one leg and not the other. That changes what the position is. A spread that sells the date before a release and buys the date after it holds the event. Reverse the dates and it holds the opposite exposure. The strikes can be identical and the two trades behave nothing alike.
Where NoVo fits
The Trader dashboard shows the expected move for SPY, QQQ and IWM, which widens when an event falls inside the window it covers. NoVo also publishes a free volatility page that ranks VIX, VXN and RVX against their own history, a longer view that a single event moves much less.