Advanced Option Greeks: Skew, Vomma, Charm & How They Impact Your Trades

What is Skew in Options?

Skew in options refers to the difference in implied volatility (IV) across different strike prices for the same expiry. In theory, options with the same expiry should have a consistent IV. But in reality, they don’t. Traders often price out-of-the-money (OTM) puts higher than OTM calls—especially during uncertain times—because they fear sharp market drops more than sudden rallies. This difference in IV is known as volatility skew or just skew.
 

How It Shows Up in Option Prices

Imagine a stock trading at ₹100. You check the implied volatility of different strike options:

• 95 Put has an IV of 30%
• 100 ATM Call has an IV of 22%
• 105 Call has an IV of 18%

Even though these options expire on the same day, their IVs differ. This is skew.

Real-Life Impact: Skew in Earnings Season

Skew is especially visible during earnings announcements. Traders expect bigger moves on the downside and therefore bid up the prices of put options more than calls. If you're planning to trade a straddle or a strangle, not accounting for skew can make the trade less profitable than expected.

How Traders Adjust for Skew

• For spreads: Favor the side with lower implied volatility.
• For hedging: Acknowledge that puts will cost more, especially during panic.
• For selling options: Use skew to your advantage by selling overpriced options with high IV.
   

What is Vomma in Options?

Vomma tells you how sensitive Vega is to changes in implied volatility. In simple terms, it measures how much your option’s Vega will change if the market becomes more or less volatile.

Let’s say you hold an option with high Vega. If volatility increases, your option becomes more valuable. But how fast Vega itself grows or shrinks with volatility? That’s what Vomma captures.
 

Why Vomma Options Matter in High-Volatility Situations

During major events—budget announcements, geopolitical tension, monetary policy decisions—volatility can rise or fall rapidly. If you trade long straddles or strangles around such events, Vomma options help explain why your position becomes riskier or more rewarding depending on how the market reacts after the news breaks.

Example: Trading After a Big News Event

Suppose you buy a straddle before the RBI policy announcement. You expect volatility to spike. But once the announcement is made, volatility drops sharply even if the stock moves a bit. Your losses might be more than expected.
Vomma was at play. As volatility dropped, Vega fell faster than you anticipated, and the option’s premium eroded.
 

Practical Use for Different Timeframes

• Short-term traders may use Vomma to avoid buying options before big news when IV is inflated.
• Long-term traders might prefer options with higher Vomma if they expect gradual increases in volatility.
   

What is Charm in Options?

Charm measures how Delta changes over time, assuming the stock price stays the same. You can think of it as the time decay of Delta.
Delta shows how much an option’s price will change with a ₹1 move in the stock. But Delta itself isn’t constant—it decays as time passes. This is especially noticeable with at-the-money options.
 

Importance in Short-Term or Intraday Trading

Charm becomes more relevant when you’re trading weekly options or holding positions overnight. Suppose you buy an ATM call, expecting the stock to rise the next day. But even if the price stays the same or rises only slightly, you may notice the call losing Delta overnight. As a result, your option barely moves even when the stock ticks up.

That’s Charm silently working in the background.

Example: Overnight Risk for Call Option Holders

You hold a call option with a Delta of 0.5 at market close. Overnight, time passes and no big movement happens in the stock. The next morning, your Delta drops to 0.4. Now, even a ₹2 rise in stock price won’t give you the same value for money.
 

How to Factor Charm into Your Strategy

• Day traders should consider exiting positions before close if holding offers limited Delta the next day.
• Short option sellers might benefit from Charm, as it reduces buyers' Delta edge.
   

Skew, Vomma & Charm: Comparison of Advanced Greeks

Takeaways for Traders

Understanding the Advanced Option Greeks—Skew, Vomma, and Charm—can give retail traders a serious edge. You don’t need to calculate them manually. Most trading platforms provide Greek values, and many analytics tools visualize skew and Vega behavior clearly.

Here’s how to simplify their use:

• Use Skew in options to identify mispriced strikes or to choose better spreads.
• Watch Vomma options closely during high-impact news events.
• Account for Charm if you’re holding positions overnight or trading weekly options.

While these concepts may seem like fine print to many, they’re often the difference between a good trade and a frustrating one.