Charm

AAA

DEFINITION of 'Charm'

The rate at which the delta of an option or warrant will change over time. Charm refers to the second order derivative of an option's value - once to time and once to the price. It is also the derivative of theta, which measures the time decay of an option's value. This value decreases as the option approaches maturity.

INVESTOPEDIA EXPLAINS 'Charm'

Charm is used by investors who employ a delta-hedging option trading strategy, and provides the investor with information on the delta of an option on a per-year basis. As the number of days left on the options contract gets smaller and smaller, charm becomes more volatile and less accurate.




RELATED TERMS
  1. Greeks

    Dimensions of risk involved in taking a position in an option ...
  2. Quantitative Analysis

    A business or financial analysis technique that seeks to understand ...
  3. Theta

    A measure of the rate of decline in the value of an option due ...
  4. Time Decay

    The ratio of the change in an option's price to the decrease ...
  5. Delta

    The ratio comparing the change in the price of the underlying ...
  6. Delta Hedging

    An options strategy that aims to reduce (hedge) the risk associated ...
Related Articles
  1. Options & Futures

    An Introduction To Gamma-Delta Neutral ...

  2. Options & Futures

    Getting To Know The "Greeks"

  3. Options & Futures

    Capturing Profits With Position-Delta ...

  4. Options & Futures

    Options Trading Strategies: Understanding ...

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  3. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  4. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  5. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center