How To Determine When Rallies Will Occur On SPX/SPY With Charm

0:01 hi everyone welcome back to my channel I wanted to do a quick video on the impact of charm compared to Vanna charm is very simple however very powerful the service depicted in these screenshots is violand if you like what you see here coupon code Fanny trades will get you a 10 discount so let's get right into it when we're looking at Tron we always want to look at the aggregate impact as a whole we have to keep in mind since this relates to how time impacts Delta which dealers hedge based on Delta that all strikes matter because time is impacting all strikes based on their expirations so we want to always look at the Aggregate and we can see here this is the as of recording this video this is the aggregate impact of SPX and we see that all this negative charm the more

0:46 negative charm that we have the more bullish the underlying acid is now you have to take that into account with gamma and Vanna as well but just from purely a charm perspective we can see here the aggregate impact of charm is uh negative 800 million whereas the positive aggregate charm impact is upwards of 400 million so we do indeed have more negative charm across the board than we do positive charm which is a foolish Factor here now the opposite of true is for positive for positive charm we want to look at the aggregate impact and same thing and this is the same data so nothing changed here really except we're just highlighting the positive charm and in this case positive charm is looked at bearish so when Deltas increase due to

1:32 due to positive charm dealers end up selling to hedge those deltas and so therefore the more positive charm we have the more bearish the underlying acid is now some other factors to keep in mind is that as I mentioned already charm impacts all strikes equally however when those strikes get passed over so if we have negative charm on a strike and it's passed over it will flip to positive or vice versa and the this of course imp changes the overall aggregate impact it will cause more strikes to become negative or positive as they're passed over and it's a hedging impact based on time across all strikes based on their expirations and what I want to show you here is when combined with Vanna this can create a very strong impact it actually leads to these large rallies that we've seen so large amounts of

2:19 aggregate positive Banner combined with large amounts of aggregate negative charm can actually lead these massive brawl ones and I should have state large amounts of positive Vanna with IV dropping that's an very important statement there you're not sure what that means make sure you check out my quick Vanna explanation video or an introduction to that so this is a past example you can see this data was as of January 26 and if we look at charm in the top left we can see that the overall impact was very negative basically across all strikes for the most part we were negative which which is very bullish I hadn't personally I haven't seen charm this bullish in a in a since I've actually started looking at charm in this way and then in the bottom right corner

3:05 we can see these tall towers of positive Vantage strikes now one thing to keep in mind is that if I be were to be rising so price was going down and Ivy was Rising these positive Mana strikes under price as we were started approaching them and get came closer to them would actually be very bearish however with IV dropping and we look at the when IV droppings positive Vanna is actually very bullish especially if we look at the aggregate we have all this positive Anna OBS dropping so the positive Banner above spot price are are pulling are essentially causing dealer buying pulling price tourism like a magnet effect whereas the positive Banner below spot price because IVs dropping are also causing buying pushing things higher so

3:51 you combine that with the charm effect and this is what you get so we had this this large full route rally and we see these from time to times in a bear Market and when this happens we oftentimes see these two come together where we see charm and Vanna so we see a lot of positive Anna we see Ivy dropping and we see a ton of negative charm and it just leads to dealer buying across strikes that are all over the options chain causing these helping cause these massive bull rallies that we see where you can catch if you catch them at the bottom if you catch them at the start you can make some incredible returns from this and that's the power of combining the two and using them as an aggregate and so there's actually a really great breakdown the creator of violand who understands this stuff better than

4:37 anyone did a post about this and was talking about he was actually calling out his Discord uh when the rally was going underway this wasn't this wasn't a hindsight thing he actually did this before it happened he was calling out out the negative impact of charm and the positive impact of Anna with IV dropping could lead to the lead to this rally which did end up happening and then after the fact he ended up doing a post about how he identified that and he actually combined some gamma knowledge in there as well it's a really great read if you're if you're interested in understanding dealer hedging impacts further but really that is all I have for charm it's a quick topic but I wanted to put it out there because it's still an important one thanks for watching