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Vanna vs Charm vs Gamma Exposure (GEX): How Dealer Flows Move Markets

Dr. Alistair Finch
September 7, 2025 • 8 min read

Vanna vs Charm vs Gamma Exposure (GEX): What Each Does, When It Matters

TL;DR

  • Vanna = how delta changes as implied volatility moves.
  • Charm = how delta changes as time passes (a.k.a. delta-decay).
  • Gamma Exposure (GEX) = a portfolio-level view of how option gamma at key strikes can shape dealer hedging and, by extension, spot behavior.

Together, these flows often explain why markets trend, pin, or mean-revert around expirations—especially with weeklies and 0DTE.

Table of contents

What is Vanna?

Definition. Vanna is a second-order Greek: the rate of change of delta with respect to implied volatility (often expressed as Δ per 1% IV move). In practice: if IV falls (e.g., post-event “vol crush”) and you hold options with positive vanna, dealer hedging can shift in a way that nudges spot directionally.

Why traders care.

  • Vol down → vanna up (for calls) can force dealer de-hedging that supports spot drifting higher.
  • Vol up can have the opposite effect, particularly into shocks.
    This vol‑sensitivity of delta often helps explain clean, low‑headline trend days following events.

What is Charm?

Definition. Charm (“delta‑decay”) measures how delta changes with time, holding other inputs constant. As time passes—most acutely into same‑day and weekly expirations—deltas can change substantially even without big spot moves, causing intraday hedging flows.

Why traders care.

  • Into the close, charm can accelerate positioning drift as deltas slide toward 0 or 1.
  • On 0DTE/weekly expiries, charm can amplify morning‑to‑afternoon moves as dealers rebalance more frequently.

What is Gamma Exposure (GEX)?

Definition. GEX aggregates open interest across strikes to estimate the market’s net gamma posture. High positive GEX around clustered strikes tends to dampen realized volatility (pinning), while negative GEX tends to amplify moves (less pinning, bigger ranges). It’s a structural read, not a stand‑alone signal.

Why traders care.

  • Positive GEX: hedging often leans toward volatility‑suppressing behavior → chop/pins near heavy strikes.
  • Negative GEX: hedging can add fuel to moves → breakouts, air‑pockets, larger ranges.

Why these flows matter more now (0DTE & weeklies)

0DTE options have become a large share of index/options flow, making expiration‑adjacent microstructure a first‑order driver of intraday behavior. That means vanna (vol‑delta sensitivity) and charm (time‑delta decay) can dominate on otherwise “headline‑light” days.

How the mechanics translate into price action

1) Post‑event vol crush (e.g., after CPI/FOMC or earnings):

  • IV often drops. For call‑heavy books, positive vanna lifts deltas; dealers reduce long‑futures hedges → supportive drift in spot.

2) OPEX/weekly pinning:

  • Large positive GEX near key strikes + charm into the close can keep price “magnetized” to those levels → pin risk.

3) Shock days / IV expansion:

  • Rising IV can flip the vanna impulse and weaken pinning, enabling larger directional moves.

4) 0DTE intraday regimes:

  • Frequent hedging around same‑day strikes means charm windows (late morning → afternoon) often matter for trend continuation or fade setups.

A practical framework for traders

Daily prep (15 minutes):

  1. Map GEX: identify largest positive/negative gamma strikes and nearest “magnet” level.
  2. Assess vol regime: rising/falling IV post‑event? → expect vanna tailwinds/headwinds.
  3. Mark charm windows: when does time‑decay of deltas likely bite (e.g., power hour)?

Intraday triggers:

  • Vol down + above “magnet” → favor trend continuation setups with measured pullback entries.
  • Neutral vol + big positive GEX → expect pin/chop; use mean‑reversion tactics.
  • Vol up + negative GEX → allow for range expansion; avoid fighting momentum.

Risk controls:

  • Use time‑based exits around charm windows (e.g., flatten into close on 0DTE).
  • Respect OI/volume thresholds—thin wings distort readings.
  • Treat GEX/vanna/charm as context, not single‑variable signals.

Common failure modes (and how to avoid them)

  • Misreading data coverage: GEX built on incomplete chains or stale OI → bad “magnets.” Favor timely OI and realistic roll assumptions.
  • Ignoring term structure/skew: A vol crush is not uniform; skew shifts can change how vanna propagates. Track term/wing behavior.
  • Forcing trend days in positive GEX: Pinning dominates more often than not—adjust expectations.

Mini‑case: “Pin Friday → Monday drift”

Setup: Monthly OPEX Friday with heavy positive GEX at a key strike; realized vol compresses into the close (pin).
Mechanics: Over the weekend, decay and positioning reset. Monday opens with lighter pinning; if event vol is lower, vanna tailwind can support a drift higher as dealers lighten hedges.

How this differs from price‑action overlays

  • Overlays describe what price did. Microstructure explains why it did it, via hedging supply/demand.
  • Vanna/Charm/GEX are mechanistic and tied to measurable positioning/decay—useful for forecasting tape character (trend, pin, expansion).

Glossary

  • Vanna: ∂Δ/∂IV — delta’s sensitivity to implied volatility.
  • Charm: ∂Δ/∂t — delta’s sensitivity to time (delta‑decay).
  • Gamma Exposure (GEX): Net gamma footprint across strikes; proxy for hedging impact on spot.

FAQs

What is the difference between vanna and charm?

Vanna is delta’s sensitivity to implied volatility changes; charm is delta’s sensitivity to time. Vanna tends to matter around vol regime shifts (e.g., post‑event), while charm dominates around expiration windows and intraday re‑hedging.

Does 0DTE “cause” volatility spikes?

Not by itself. Hedging around same‑day strikes can influence intraday dynamics, but broader market context—IV regime, liquidity, and positioning—determines whether ranges expand or compress.

Is GEX a trading signal?

Treat GEX as context for expected tape character (pin vs. expansion). Combine with IV trend, realized vol, and liquidity. It’s most useful for framing what kind of day is likely, not the exact entry.

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