Vanna & Charm · Desk

How Vanna & Charm Exposure Is Computed

Two cross-Greeks, open interest, a sign convention, and a sum by strike. The full recipe — and where the assumptions live.

Net dealer vanna and charm are built the same way as dealer gamma, just from different derivatives of the option's value. Here is each step.

The two Greeks

Vanna is the second-order sensitivity of the option's value to spot and volatility together — equivalently, how delta moves when implied vol changes (∂Δ/∂σ). Charm is the sensitivity of delta to the passage of time (∂Δ/∂t), also called delta decay. Both are computed for every strike and expiration from a standard Black–Scholes model using spot, strike, time, rate, and implied vol.

Scaling to hedging flow

Each strike's vanna and charm are multiplied by its open interest and the contract multiplier to express them as the size of the delta dealers must trade per unit move in vol or per day of time. That converts an abstract Greek into an estimate of real hedging flow concentrated at each strike.

The sign convention

The signs follow the same standard convention as dealer gamma: dealers are treated as long call exposure and short put exposure — the mirror of a customer base that buys puts and sells calls. Under it, the net vanna and charm profiles tell you which way dealers must trade as vol falls or as time passes. It is a well-used assumption, not a measurement of real books.

Net by strike

Summing the signed, OI-weighted exposures at each strike gives the Net Dealer Vanna by Strike and Net Dealer Charm by Strike profiles. The biggest bars mark the strikes where a vol move or the approach of expiration will generate the most hedging — the levels that drive vanna rallies and charm drift.

Limitations

These are regime heuristics, not flow models. They assume the sign convention, use listed open interest (which lags intraday positioning), can't see OTC or true dealer inventory, and depend on the implied vols feeding the Greeks. Charm in particular grows non-linearly into the final days before expiration, so its profile is most potent — and most sensitive — near OPEX. Read them for the direction and concentration of vol- and time-driven flow, not as precise predictions.

How it maps to the Nations suite

Vanna and charm complete the dealer-positioning picture that gamma begins — price, vol, and time flows together. Read them alongside the implied-vol tools: the Option Window and Event Vol tools flag the vol moves and event crushes that fire vanna in the first place.

Educational content from Nations Indexes. Vanna and charm exposures are estimates under a standard sign convention; they are regime heuristics, not precise flow models, and are sensitive to the inputs above. Nothing here is investment advice.