-vanna/charm ladder

Rather than tracking static inventory counts, our model focuses on price and real-time rates of change. The -Vanna and Charm ladders track how volatility collapse and time decay add or take liquidity from the market into expiration.

As our metrics page highlights, both the -vanna and charm ladders indicate the delta impact, in dollar terms, of the collapse in volatility and the passage of time. While -vanna ex estimates the impact of a total collapse (all options expiring), charm ex estimates the impact per hour. Charm ex increases exponentially into expiration because the decay rate of OTM options accelerates rapidly as time approaches zero. While -vanna ex is more stable, charm ex highlights the relevance of shorter-dated options as liquidity shifts into expiry.

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Directional Mechanics

State charts display exposure in terms of taker positioning:

• Positive bars (Right): Delta drift adds supportive liquidity (passive bids) to the market, absorbing downward pressure into the close.
• Negative bars (Left): Delta drift adds overhead selling liquidity (passive offers), capping upside and exerting downward drag into the close.

This liquidity effect accelerates non-linearly into expiration, especially during the final hour of 0 DTE trading.

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Reading the Ladder

Strike by strike, decay reshapes local liquidity:

• Taker-sold positions (short volatility) act as liquidity sinks (pins). They supply stabilizing liquidity on both sides of spot (bids below, offers above), absorbing volatility and attracting price into expiry.
• Taker-bought positions (long volatility) act as liquidity voids (repellers). They drain stabilizing liquidity around the strike, repelling price and encouraging trending moves.

As the day winds to a close, -vanna levels become more powerful than gamma. Positive -vanna levels act as support from below, and negative -vanna levels act as resistance from above. Entering a stack of negative -vanna signals likely downward continuation. Entering a stack of positive -vanna signals likely upward continuation.

Keep in mind that the polarity of a -vanna level flips as spot crosses it, and zeros out when spot is on it. When spot is at a -vanna level (local zero -vanna), liquidity is balanced across the strike. But as spot moves slightly above or below, liquidity shifts rapidly, which gives these levels their acuity. Significant levels represent local zeros for the -vanna complex, making them strong pivots.

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Net Formulas & Units

• Charm Ex: Delta impact per hour across strikes ($MM/hr). Increases exponentially as expiration approaches.
• -Vanna Ex: Delta impact of total volatility collapse ($MM until expiry).