Vanna
Delta sensitivity to volatility changes
What is Vanna?
Vanna The rate of change of delta with respect to changes in implied volatility, or equivalently, the rate of change of vega with respect to the underlying price. Vanna is crucial for understanding how delta hedging needs change when volatility shifts. Market maker vanna hedging flows can create significant directional pressure, especially during volatility compression.
Complete Definition
The rate of change of delta with respect to changes in implied volatility, or equivalently, the rate of change of vega with respect to the underlying price. Vanna is crucial for understanding how delta hedging needs change when volatility shifts. Market maker vanna hedging flows can create significant directional pressure, especially during volatility compression.
Example
When IV drops, positive vanna positions see delta increase, forcing dealers to sell stock to re-hedge, creating downward pressure.
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