What are second-order Option Greeks?

Second-order Option Greeks measure the rate of change of first-order Greeks. Vanna measures how delta changes with respect to implied volatility (dDelta/dIV), while Charm measures how delta decays over time (dDelta/dTime).

Why are Vanna and Charm important for market maker positioning?

Market makers continuously rehedge their delta. Vanna forces dealers to adjust hedges as IV expands or contracts, while Charm forces automatic weekend/overnight delta rehedging as expiration approaches.

QUANTUMFLOW GUIDE First & Second-Order Option Greeks Matrix

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First & Second-Order Option Greeks

Published: August 8, 2026 • Authored by QuantumFlow Analytics Team • SEBI Compliant

⚡ QUICK ANSWER: What are First & Second-Order Option Greeks?

First-Order Greeks (Delta, Gamma, Theta, Vega) measure how an option's price changes relative to underlying price, volatility, and time. Second-Order Greeks (Vanna, Charm, VEX, CEX) measure how delta itself changes as volatility shifts or time passes. Quantitative traders use second-order Greeks to anticipate structural dealer rehedging flows before price breakouts occur.

1. First-Order Option Greeks Overview

Delta ($\Delta$)

$\partial V / \partial S$

Measures option price change per ₹1 movement in NIFTY spot. Also represents market probability of expiring in-the-money.

Gamma ($\Gamma$)

$\partial^2 V / \partial S^2$

Measures the rate of change of Delta per ₹1 move in spot. High near ATM strikes during expiry week.

Theta ($\Theta$)

$\partial V / \partial T$

Measures daily option premium decay over time. Accelerates exponentially during the final 7 days to expiry.

Vega ($\nu$)

$\partial V / \partial \sigma$

Measures option price sensitivity per 1% change in Implied Volatility (IV) or India VIX.

2. Second-Order Option Greeks (Vanna & Charm)

While basic traders only monitor Delta and Theta, quantitative institutions track second-order cross-derivatives to model dealer inventory shifts:

Vanna ($\partial \Delta / \partial \sigma$): Quantifies how option delta changes when Implied Volatility shifts. High positive Vanna causes dealers to buy futures as IV drops during market rallies. Read Deep-Dive Vanna Guide ➔
Charm ($\partial \Delta / \partial T$): Quantifies how option delta decays as time passes toward expiry. Drives massive weekend delta rehedging on Friday market closes and Monday opens. Read Deep-Dive Charm Guide ➔
Vega Exposure (VEX): Aggregate net vega positioning held by options market makers across the contract in ₹ Crore.
Charm Exposure (CEX): Aggregate net charm decay positioning across active strike prices.

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