Gamma explains the violent intraday feedback loops. It does not explain the slow grind into a Friday expiry or the melt-up as IV bleeds after an event. Those are charm and vanna — the second-order greeks that move dealer hedges over time and across vol, not just across spot.
Charm: hedge decay over time
Charm is the rate of change of delta with respect to time — how an option's delta drifts as the clock runs, holding spot flat.
The practical read: as expiry approaches, OTM options shed delta and ITM options gain it. Dealers who are hedged must adjust. Into a large pin, charm flows tend to push spot toward the strike where the bulk of open interest sits, because dealers mechanically rebalance as time decays the surrounding deltas.
This is why the back half of expiry week so often grinds quietly toward a max-pain zone with no obvious catalyst. The catalyst is the calendar.
Vanna: hedge sensitivity to vol
Vanna is the rate of change of delta with respect to implied volatility. When IV moves, the deltas dealers are hedging move with it — even if spot hasn't.
The classic setup: an event passes, realized comes in below implied, and IV gets crushed. If dealers are short vol and the vanna sign points that way, the IV drop forces them to buy spot to stay hedged. That is the mechanical engine behind the "nothing happened and we ripped" post-event rally. The news was a non-event; the vol crush was the trade.
Reading them together
Charm and vanna compound around scheduled events and large expiries:
- Heavy OI builds into an expiry or an FOMC print.
- Charm pulls spot toward the dominant strike as time decays.
- The event resolves, IV collapses, and vanna flows shove spot in the direction dealer positioning dictates.
Map the strikes, know whether dealers are long or short gamma and vol, and these flows stop looking like random drift.
Takeaway
Gamma is the fast loop; charm and vanna are the slow ones. Charm explains calendar-driven pins into expiry, and vanna explains vol-crush moves where spot reacts to IV rather than news. Track dealer positioning across both time and vol — not just spot — or you will keep mislabeling mechanical hedging flow as conviction.