Module 2 · Dealer Gamma
Charm & Vanna
Second-order Greeks that drive expiration flows.
In this lesson you'll
- Define charm (delta decay) and vanna (delta vs vol)
- Understand the end-of-day charm pin
- Understand the vanna rally
Charm produces a steady, predictable hedging drift that intensifies into the close — the source of the end-of-day pin. As deltas decay, dealers shed or add hedges in a one-directional drift channeled by the nearby concentrated OI.
The vanna rally: falling IV (e.g., after an event passes) → dealers buy → price up → IV falls more — a self-reinforcing “volatility-reset” rally driven by hedging, not news. Into a major expiration with declining IV, charm + vanna together can push drifts higher that seem to defy fundamentals.
Key takeaways
- Charm = delta decay through time; it drives a one-way hedging drift into the close (the EOD pin).
- Vanna = delta sensitivity to IV; falling IV makes dealers buy (the vanna rally).
- Charm + vanna into expiration can lift price seemingly against fundamentals.
- They're tendencies/mental models, not mechanical signals.
Check your understanding
Pick an answer to reveal instant feedback. Answer every question to complete the lesson.
Why that's off: Delta changing with price is gamma.
Why that's off: Volume isn't a Greek.
Why that's off: The strike is fixed; charm is about time.
Charm is the change in delta as time passes. Into the close it produces a predictable, one-directional hedging drift — the end-of-day pin.
Why that's off: The vanna rally is a hedging phenomenon, not a news move.
Why that's off: It's about implied vol, not rates.
Why that's off: Max pain is a separate expiration concept.
When IV falls, dealers' short-put deltas shrink, so they buy the underlying — a self-reinforcing rally driven by hedging (vanna), not by fundamentals.
Educational content only. Nothing here is financial or trading advice. Order-flow and options patterns shift probabilities; they never guarantee outcomes.