What hedge change follows over six hours at +200 shares/calendar day?
Reveal the worked answer
Sell about 50 shares.
200×0.25=50 added Delta; hedge oppositely.
Dealer Logic · DL-09 · Core
Dealer Charm
Why can the clock change a neutral book?
What you will learn and prerequisites
- Explain the mechanism in the lesson question.
- Reproduce the worked comparison and recognize its failure case.
Read first: Why dealers hedge
Charm is Delta's calendar-time drift with other inputs fixed. A book can move away from neutrality without a spot trade because the remaining option life changes.
This course defines Charm as the negative derivative with respect to remaining time. Another source's opposite convention must be converted before comparison.
Understand the mechanism
If Charm is +200 share-equivalents per calendar day, one-quarter day adds approximately +50 option Delta. The offsetting hedge sells 50. A negative sign reverses the direction.
Daily, annual and trading-day displays are different units. Near expiry a fixed daily approximation can become stale during the same day.
Walk through the process
Check the dominant expiries and inventory changes. Isolate clock effects from spot and IV effects rather than attributing everything to one dealer-flow label.
A modeled clock drift does not specify a compulsory execution time. Desks have different thresholds, objectives and transaction costs.
Evidence boundary
The arithmetic is original conditional teaching material, not a measurement of current dealer positions. The cited Cboe research is historical product-specific evidence, not a live inventory feed. Model outputs should remain distinguishable from observed market facts.
A worked example
A hypothetical book begins locally neutral with +200 shares/day of Charm. Six hours are 0.25 calendar day. The option exposure increases about 50 shares, so the new hedge adjustment is −50.
If spot or IV moves during the interval, full revaluation or additional sensitivity terms are needed. The graph shows only the isolated clock contribution.
Open the calculation without leaving this lesson
Dealer Charm—worked comparison
Vertical: Hedge change (shares)
Horizontal: Elapsed calendar days
1. Fictional example
Read the graph as a data table
| Elapsed calendar days | Fictional example |
|---|---|
| 0 | 0 |
| 0.25 | -50 |
| 0.5 | -100 |
| 0.75 | -150 |
| 1 | -200 |
What would invalidate the reading?
Reversing calendar time and remaining time reverses the conclusion. Assuming every expiry creates the same daily flow ignores signed inventory.
Check your understanding
Try the question before revealing its answer. These are reading checks, not trading certification or a site completion record.
What is the critical failure to avoid?
Reveal the worked answer
Reversing calendar time and remaining time reverses the conclusion. Assuming every expiry creates the same daily flow ignores signed inventory.
Explain this risk before treating the example as a decision rule. A correct calculation does not guarantee a favorable market outcome.
Return to the question: Why can the clock change a neutral book? State the observed facts, the assumptions and the failure condition separately.
Sources, assumptions and downloadable script
External references support definitions and conventions. Worked scenarios and prose are original. No current quotes or dealer inventory are claimed.
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