net -vanna/charm
Net dollar liquidity added or removed by time decay and implied volatility collapse into expiration.
API Endpoints
Access this data from the Orderflow Latest API endpoint.
Net Charm = Charm Ex across all strikes ($MM/hr)
Net -Vanna = -Vanna Ex across all strikes ($MM until expiry)Net -vanna and charm measure how time decay and volatility collapse alter market liquidity into expiration:
- When positive, delta drift adds supportive liquidity (passive bids) to the market, absorbing downward pressure.
- When negative, delta drift adds overhead selling liquidity (passive offers), creating downward drag.
Example
Assume that the only positions on our ladder are taker-sold OTM calls (short volatility). As we progress into expiry, the value of those calls evaporates, making takers less short.
In this case, both net charm and net -vanna are positive. Delta drift adds supportive bid liquidity as expiry approaches, absorbing downward moves. These flows cease if price approaches those short calls and they become at-the-money contracts.
Timing and Magnitude
While the above is simple and intuitive, the reality is that both timing and magnitude matter. On SPX, net -vanna becomes relevant when beyond $800MM in magnitude and during the last hour of the day. When above $1,000MM in magnitude, the effects become relevant sooner—in the last couple of hours.
Getting a sense for these thresholds is a matter of some discretion, but we've noticed a marked difference between extreme and moderate values. Extreme days typically feature extreme intraday reversals as traders frontrun the effects of positioning unwinding. In these cases, you'll see net -vanna, and net charm in particular, accompany and accelerate in the direction of the move.
Potential Energy
This brings me to my final point, which is that both metrics are a good indication of potential energy in the market. When they hover at neutral, we are floating freely. We often see price stall or wander aimlessly during these times. Extreme values, however, beget extreme moves, even earlier in the day. It is only as the day progresses, though, that we feel comfortable taking a directional stance on the basis of these flows.