Dealer Hedging Dynamics - Intro to Charm & Vanna
About this lesson
Charm refers to the influence of the passage of time... on delta.
It's one of the Greeks you're least likely to encounter in the traditional literature- but it can be incredibly important... especially because it's strongest for options with the least time to maturity.
As 0DTE volumes and positions grow... charm becomes increasingly relevant at the end of every single day.
Vanna is related... remember- time is volatility.
For vol drops / IV lower.. the way Vanna works is the exact same as the way charm works.
For the opposite?
When IV goes higher... an option's delta approaches 50
...at the extreme, every option is an ATM
The options most exposed to the influences of both Charm and Vanna are the 20 delta options on each side of the distribution (-20d Put/80d Call, 20d Call/-80d Put)