What it means
Charm (also called delta decay or DdeltaDtime) is the second-order Greek measuring how an option's DELTA changes with the PASSAGE OF TIME, holding spot and vol constant. Specifically: ∂Δ/∂t. Why it matters: as options approach expiration, deltas converge to 0 (OTM) or 1 (ITM). The path of that convergence requires continuous hedging rebalancing — dealers must adjust delta hedges as charm-driven delta drift accumulates daily. Charm flows are largest in short-dated options near pin-strikes; explain much of the 'pinning' behavior at OPEX.
Why it matters
Charm is responsible for the structured pinning at major strikes around OPEX. As Friday OPEX approaches, deltas of strikes near spot drift toward 0.5 (the strike level), requiring dealers to hedge by trading underlying toward the strike. SPX pinning at round-number strikes (5000, 5500) on OPEX Fridays is largely charm-driven dealer flow. The effect is most visible in single-name options with concentrated OI at specific strikes (Tesla, NVIDIA classic 'magnet' strikes).
How to use it
Track major OPEX strikes with large OI concentrations. Charm-driven pinning typically intensifies in the final 2-5 sessions before expiration. Strategies: avoid breakout trades into major strikes near OPEX (charm acts as resistance); fade brief breakouts back to the strike with high success rate.
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