Basic Points

• The back month in an option strategy always has the higher DTE (days to expiration) and the front month always has a shorter DTE. 
• The implied volatility (IV) of options (the expected percentage move with 68.3% confidence as priced in by the options market) can differ substantially between the back and front months, depending on factors such as how much expected future events are being priced in by the options market. 
• One way to reference how many months back a contract goes is with the term “tenor”. The tenor is a count of how many months out an options contract is. In terms of tenor, the front month is tenor 1 and the second month out is tenor 2. 

Intermediate: Basics of Term Structure Edge

When analyzing IV across different dates, such as with tenor 0-4 on the [horizontal] x-axis, this is called the term structure (IV over time). For attempting to gain term structure edge (advantage), it is common to open a calendar spread, in which a back month (at a lower IV) is bought and a front month (at a higher IV) is written. The stronger that differential in implied volatility, the stronger the term structure edge.

For example, one might example this term structure here of volatility futures, and decide to buy the August contract (lower IV) and write the July contract (higher IV). That said, sometimes there are seasonal or other other justifications for anomalies like this in term structure, which can render this kind of perceived edge into an illusion.

<Volatility futures term structure example retrieved from VIX Central>

Advanced: Adding Two More Dimensions

And when analyzing the term structure at the same time as the volatility smile, which is a 2D visualization comparing IV against strikes (or moneyness) on the x-axis, then we are observing the volatility surface. A volatility surface is a 3D visualization showing how the volatility smiles change depending on whether near the front month, back month, or further out tenor. And then to take it one more dimension beyond that, we can compare that surface to how it looked at some point in the past, perhaps discovering a convincing analog (comparison to a similar historical pattern or structure). 

In the lower-left of the example below (of a volatility surface comparison), a front-month contract is circled in green and a back-month contract is circled in red.

<Multi-surface comparison retrieved from Trader Workstation>