Charm (Options Greek)
Charm, also called delta decay or DdeltaDtime, is a second-order options Greek that measures the rate at which an option's delta changes with the passage of time, showing how much delta will shift from one trading day to the next.
Charm sits in the family of second-order Greeks — sometimes called the Greeks of the Greeks — because it measures the rate of change of a first-order Greek (delta) rather than the option price itself. Understanding charm is most relevant for delta-neutral traders who re-hedge their books daily, since an unattended position will drift from neutrality as time passes, even when the underlying stock price stays flat.
For out-of-the-money calls, charm is typically negative: as time decays, the probability of the option finishing in the money shrinks, so delta gradually drifts toward zero. For in-the-money calls, charm can be positive near expiration as delta converges toward 1.0 with increasing certainty. At-the-money options near expiration exhibit the most dramatic charm behavior because their delta is most sensitive to small probabilities shifting around the 50% threshold.
Market makers at CBOE-listed options desks pay close attention to charm when managing gamma-scalping books across large portfolios. A portfolio that appears delta-neutral at the close of Monday can be meaningfully delta-long or short by Tuesday's open simply due to overnight charm drift, even without any overnight price movement in the underlying. Traders using automated delta-hedging algorithms at firms such as Citadel Securities and Susquehanna program charm adjustments into their intraday hedging frequency calculations.
Charm is most pronounced in the final days before expiration, particularly for contracts near the money, where delta is most sensitive to the remaining time. This is one reason professional traders closely monitor their books during monthly options expiration week on the third Friday — charm-driven delta shifts interact with gamma to create outsized hedging activity that can influence underlying stock prices, a phenomenon sometimes called options pinning.
For retail traders, charm is less of a practical daily concern. But understanding that delta is not a static number — it decays toward 0 or 1 as expiration approaches, even in a flat market — helps build intuition about why a spread that was balanced at entry can become unbalanced over time without any movement in the stock.