Charm
How delta drifts with the passage of time
Charm — also called delta decay — measures how much delta changes purely because a day has passed, with the underlying price unchanged. It is a second-order Greek, and it explains why a hedged book drifts out of balance overnight.
What It Describes
As expiration approaches, an out-of-the-money option sees its delta migrate toward zero while an in-the-money option sees its delta migrate toward ±1. Nothing needs to happen in the market for this to occur; time alone does it. Charm quantifies that drift.
Why Desks Care
A market maker who is delta neutral at Friday close will not be delta neutral at Monday open, even if the underlying gaps to exactly the same price. Charm is the reason, and it generates predictable hedging flows around weekends and expiration — flows that contribute to observable patterns such as pinning near high open-interest strikes.
Where Charm Peaks
Charm is largest for options near the money with little time left, precisely where gamma is also extreme. For a retail trader, the practical implication is not that charm needs to be modelled, but that positions held into the final days behave in ways that a first-order Greek view does not capture.