Vanna Charm Indicator

Following Vanna Charm flows is one of the simplest ways to trade structural flows each month.

In a Bullish Trend, we often see the market rally once return and weakness in the 🪟 of non-strength.

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Vanna + Charm are complex 2nd order derivatives of the underlying options.

Vanna (): Vanna measures how an option’s delta changes with implied volatility (IV). Near expiration, falling IV forces dealers short options to buy back hedges to stay delta-neutral, boosting prices.

Charm (): Charm tracks how delta changes over time. As expiration nears, out-of-the-money options lose delta rapidly, forcing dealers to buy back shares or futures, creating a 'charm bid' that dampens downside volatility and often lifts prices.

flows strengthen as options approach expiration & vanish as options expire

In a Bullish Trend, the return of often support the market on each pullback

In Bearish Trends, often flips for risk assets + bullish for inverse ETFs

Understanding Vanna and Charm flows helps investors predict how options expirations might affect assets, for a more disciplined trading strategy.

... this indicator is an attempt simplify these ideas for the average trader