Vanna

What Is Vanna?

Vanna measures how an option’s delta changes when implied volatility moves. It’s simultaneously the rate at which vega changes with price movement. An option with vanna of 0.02 sees its delta increase by 0.02 for every 1-point rise in IV.

Vanna is a second-order Greek at the intersection of delta and vega. When IV rises, vanna determines how much delta shifts without any price movement. For OTM options, rising IV pulls delta upward (calls) or more negative (puts) because higher volatility increases the probability of finishing in-the-money.

The sign depends on moneyness. OTM calls and ITM puts typically have positive vanna. OTM puts and ITM calls typically have negative vanna. ATM options have vanna near zero — their delta is already near 0.50 and relatively insensitive to small IV changes.

Why It Matters for Options Traders

Vanna creates observable systematic hedging flows. When IV rises sharply during a selloff or VIX spike, dealers holding short OTM puts must adjust delta hedges — not because price moved, but because rising IV changed put deltas via vanna. This produces self-reinforcing selling: market falls, IV rises, put deltas become more negative, dealers sell more underlying to hedge, pushing the market lower.

The reverse supports recovery rallies. As volatility compresses after a fear event, put deltas normalize, dealers buy back hedges, and mechanical buying appears before fundamental buyers step in. Traders tracking aggregate vanna exposure can identify when this mechanical pressure is at work.

Vanna interacts with volatility skew. Because skew prices OTM puts at elevated IV relative to calls, vanna concentrates disproportionately in put positions. A shift in skew changes vanna flows even without movement in ATM volatility.

Key Relationships

• Second-order Greek: Sits between delta and vega — IV change alters delta, price change alters vega, by the same amount
• IV expansion drives delta shifts: Rising IV increases delta magnitude for OTM options, triggering hedging adjustments without price movement
• Dealer hedging amplifier: Large short put books create forced buying or selling as IV moves, amplifying directional trends
• Selloff vanna spirals: Falling prices plus rising IV trigger simultaneous hedging for both price (gamma) and IV (vanna)
• Recovery bid: Volatility compression drives vanna-driven buying as put deltas normalize and hedges unwind
• Skew sensitivity: Higher skew concentrates vanna in the put wing, making markets more sensitive to downside IV changes