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.


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.

  1. Theta

    A measure of the rate of decline in the value of an option due ...
  2. Greeks

    Dimensions of risk involved in taking a position in an option ...
  3. Time Decay

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

    An options strategy that aims to reduce (hedge) the risk associated ...
  5. Quantitative Analysis

    A business or financial analysis technique that seeks to understand ...
  6. Delta

    The ratio comparing the change in the price of the underlying ...
Related Articles
  1. Options & Futures

    An Introduction To Gamma-Delta Neutral Option Spreads

    Find the middle ground between conservative and high-risk option strategies.
  2. Options & Futures

    Getting To Know The "Greeks"

    Understanding price influences on options positions requires learning about delta, theta, vega and gamma.
  3. Options & Futures

    Capturing Profits With Position-Delta Neutral Trading

    This trading strategy will show you how to gain from a decline in implied volatility on any movement of the underlying.
  4. Options & Futures

    Options Trading Strategies: Understanding Position Delta

    Learn more about the position delta hedge ratio and how it can tell you the number of contracts needed to hedge a position in the underlying asset.
  5. Options & Futures

    Using "The Greeks" To Understand Options

    These risk-exposure measurements help traders detect how sensitive a specific trade is to price, volatility and time decay.
  6. Options & Futures

    Using Options Tools To Trade Foreign-Exchange Spot

    Find out how delta, gamma, risk reversals and volatility can all help predict movements in the cash market.
  7. Credit & Loans

    Pre-Qualified Vs. Pre-Approved - What's The Difference?

    These terms may sound the same, but they mean very different things for homebuyers.
  8. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  9. Insurance

    Cashing in Your Life Insurance Policy

    Tough times call for desperate measures, but is raiding your life insurance policy even worth considering?
  10. Fundamental Analysis

    Using Decision Trees In Finance

    A decision tree provides a comprehensive framework to review the alternative scenarios and consequences a decision may lead to.
  1. How do hedge funds use equity options?

    With the growth in the size and number of hedge funds over the past decade, the interest in how these funds go about generating ... Read Full Answer >>
  2. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  3. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  4. How can an investor profit from a fall in the utilities sector?

    The utilities sector exhibits a high degree of stability compared to the broader market. This makes it best-suited for buy-and-hold ... Read Full Answer >>
  5. What are the main risks associated with trading derivatives?

    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>
  6. What is the difference between derivatives and options?

    Options are one category of derivatives. Other types of derivatives include futures contracts, swaps and forward contracts. ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  2. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  3. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  4. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  5. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  6. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
Trading Center