Options

Charm

The Greek measuring how an option's delta decays with time — driving the systematic 'pin to strike' effect near expiry.

Definition

Charm = ∂Delta/∂Time. As expiry approaches, OTM option deltas decay toward 0 and ITM deltas decay toward 1 (or -1). Dealers hedging short option positions therefore unwind delta hedges as expiry approaches, generating predictable flows.

Charm is the technical reason indices often 'pin to strike' on monthly OpEx Fridays.

Why it matters

Charm flows are mechanically predictable and represent measurable cross-section of OpEx Friday price action.

Worked example

Friday before December 2023 OpEx: SPX pinned within 15 points of 4,700 strike for most of the session as dealer charm flows unwound around concentrated open interest.

Frequently asked

When are charm flows largest?⌄

Last 2 weeks before monthly OpEx, especially the final 48 hours.

Does charm work on weekly options?⌄

Yes but smaller magnitude — only the largest weeklies (SPX, QQQ, NVDA) generate measurable charm flows.

How do you trade charm?⌄

Most institutionally via short-dated strangles around major OpEx levels, or directional fades of post-expiry mean reversion.

Are charm flows the same as gamma?⌄

Related but distinct — gamma is delta sensitivity to spot, charm is delta sensitivity to time.

Related terms

Vanna

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Gamma Squeeze

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Implied Volatility

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Volatility Term Structure

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