The second-order greeks that move dealer hedges even when price stands still
Gamma explains how dealer flow reacts to price. But dealers must also re-hedge when volatility shifts and when time simply passes — and those forces have names: vanna and charm. They're subtle, predictable, and often the quiet bid behind a slow grind higher.
Vanna is the sensitivity of an option's delta to a change in implied volatility. Since dealers hedge delta (see market maker hedging), a move in volatility changes their required hedge even if the underlying hasn't budged.
The vanna rally: When implied volatility falls, dealer vanna exposure typically forces buying of the underlying. This is why quiet, vol-compressing tapes — the day after a feared event passes, for instance — so often drift relentlessly higher with no obvious catalyst.
Charm (also called delta decay) is the change in an option's delta as time passes, with price and volatility held constant. As expiration nears, out-of-the-money deltas bleed toward zero and in-the-money deltas drift toward one — and dealers must continuously adjust hedges to match.
Charm flows are direction-predictable: in a market sitting above key put strikes, the steady decay tends to produce a persistent dealer bid as those puts lose delta. It's a small force per hour, but it compounds over a week into OPEX.
Both flows scale with open interest and intensify as time-to-expiry shrinks — so they crescendo heading into a large monthly expiration. Stable-or-falling vol (vanna) plus relentless time decay (charm) can stack into a sustained tailwind during OPEX week, which then releases once that open interest expires and the positioning resets.
The catch: vanna flow can reverse hard. The same exposure that bids the market as vol falls becomes a powerful accelerant if volatility spikes — dealers flip from buyers to sellers, compounding a selloff just as gamma turns negative.
Read the full dealer positioning picture
Gamma levels and regime updated in real time on the dashboard
View Live DashboardThe OPEX Effect — why monthly expiration concentrates these flows
How Do Market Makers Hedge? — the delta hedging vanna and charm act on
Dealer Flow Explained — the hub: how hedging moves markets
Positive vs. Negative Gamma — why vanna reverses in a vol spike