When there is a significant event on the calendar, such as an election, the forward volatility that can be extracted from the term structure for a time span that captures the event is often elevated. This creates "kinks" in the volatility curve, which traders often buy or sell based on their expectations for the amount of volatility that the event would generate.
Key learning objectives:
What is Implied Volatility and how is it extracted from market option prices through Black-Scholes model?
What is Vega & term structure of volatility?
How do we calculate weighted vega?
What is Forward Volatility?