the market's implied impact of upcoming events. For instance, it is well-observed that realized volatility for stock prices rises significantly on the day that a company reports its earnings. Correspondingly, we see that implied volatility for options will rise during the period prior to the earnings announcement, and then fall again as soon as the stock price absorbs the new information. Options that mature earlier exhibit a larger swing in implied volatility (sometimes called "vol of vol") than options with longer maturities. Other option markets show other behavior. For instance, options on commodity futures typically show increased implied volatility just prior to the announcement of harvest forecasts. Options on US Treasury Bill futures show increased implied volatility just prior to meetings of the Federal Reserve Board (when changes in short-term interest rates are announced). The market incorporates many other types of events into the term structure of volatility. For instance, the impact of upcoming results of a drug trial can cause implied volatility swings for pharmaceutical stocks. The anticipated resolution date of patent litigation can impact technology stocks, etc. Volatility term structures list the relationship between implied volatilities and time to expiration. The term structures provide another method for traders to gauge cheap or expensive options. Implied volatility surface It is often useful to plot implied volatility as a function of both strike price and time to maturity. The result is a two-dimensional curved surface plotted in three dimensions whereby the current market implied volatility (z-axis) for all options on the underlying is plotted against the price (y-axis) and time to maturity (x-axis "DTM"). This defines the absolute implied volatility surface; changing coordinates so that the price is replaced by delta yields the relative implied volatility surface. The implied volatility surface simultaneously shows both volatility smile and term structure of volatility. Option traders use an implied volatility plot to quickly determine the shape of the implied volatility surface, and to identify any areas where the slope of the plot (and therefore relative implied volatilities) seems out of line. The graph shows an implied volatility surface for all the put options on a particular underlying stock price. The z-axis represents implied volatility in percent, and x and y axes represent the option delta, and the days to maturity. Note that to maintain put–call parity, a 20 delta put must have the same implied volatility as an 80 delta call. For this