VARIANCE TERM STRUCTURE CAN INDENTIFY TRADES
To determine if a term structure trade is needed, we could look at variance term structure
rather than implied volatility term structure...An ATM term structure will not be ATM as soon as the spot moves, so it is effectively strike dependent.
Variance term structure is similar to ATM term structure, despite variance being
long skew and skew being greater for near-dated implieds. This is because the time value of
an OTM option increases with maturity. Hence, the increased weight associated with OTM
options cancels the effect of smaller skew for longer maturities.