Charm
Charm measures how an option's delta changes as time passes, also called delta decay. Learn why hedges drift over time and why traders watch charm over weekends.
Charm measures how an option's delta changes as time passes. It is sometimes called "delta decay," because it tells you how much your delta will drift just from the clock ticking, even if the stock never moves.
It is a second-order Greek, one that describes how another Greek behaves. If theta is time decay for an option's price, charm is time decay for its delta. Let me show you why that drift happens.
Delta Has Its Own Time Decay
Delta is not fixed. As expiration approaches, an option's delta drifts toward one of two destinations, and charm measures the speed of that drift per day.
An in-the-money option sees its delta creep toward 1.00 as time runs out, because it increasingly behaves like the stock itself. An out-of-the-money option sees its delta fade toward 0, because it increasingly looks like it will expire worthless. Charm captures that daily migration. The stock can sit perfectly still, and your delta still shifts, purely because a day passed.
Why Hedgers Watch It
Charm matters most to traders who keep a position delta neutral. If your hedge is balanced today, charm quietly unbalances it tomorrow.
Because delta drifts with time, a perfectly hedged book slowly tilts off neutral as the days pass, even in a flat market. A trader who ignores charm can arrive to find their carefully balanced position has drifted directional overnight. To stay neutral, they must anticipate the delta drift and rebalance for it.
The effect is strongest for near-the-money options close to expiration, where delta is most sensitive to time, and it is largest over long gaps when no trading happens.
The Weekend Effect
Charm gets special attention on Fridays, and the reason is the weekend.
Delta decay does not pause for the market being closed. Over a weekend, two or three days of time pass, so an option's delta can drift noticeably by Monday's open, with no trading in between. A hedger who is delta neutral Friday afternoon can be meaningfully off by Monday, purely from charm working through the closed days.
That is why professional hedging desks adjust for charm ahead of weekends and holidays, pre-positioning for the delta drift they know is coming. For most traders, the practical lesson is simpler: your delta is a moving target, and time alone keeps moving it.
- Charm is how an option's delta changes as time passes.
- In-the-money deltas drift toward 1.00; out-of-the-money toward 0.
- It quietly unbalances a delta-neutral hedge over time.
- It is watched over weekends, when days pass with no trading.
Pop Quiz
Three quick questions to see what stuck. Pick an answer and the explanation shows up right away.
What does charm measure?
Charm is delta decay: the drift in delta caused purely by the passage of time.
As expiration nears, where does an in-the-money option's delta drift?
An in-the-money option increasingly behaves like the stock, so its delta creeps toward 1.00.
Why do hedgers watch charm over weekends?
Time keeps passing while the market is closed, so delta can drift meaningfully by Monday.
Bottom Line
Charm is time decay for your delta. As the clock runs down, in-the-money deltas drift toward 1.00 and out-of-the-money deltas fade toward 0, all without the stock moving an inch. It is a second-order Greek that keeps your directional exposure quietly shifting.
For hedgers it is a real chore: a neutral book drifts off balance as time passes, especially over weekends when days go by with no chance to adjust. Even if you never hedge, the lesson lands: delta is a moving target, and time is one of the things moving it.
Keep going: the delta it acts on is delta, its price-side cousin is theta, and the balancing act it disturbs is delta neutral.