Vanna
Vanna measures how an option's delta changes when implied volatility changes. Because a shift in volatility alters dealers' hedges even when price is flat, vanna links the volatility surface to spot: falling volatility can create a mechanical bid as dealers re-hedge, a dynamic often behind grind-higher, vol-compressing rallies.
Vanna is a second-order Greek: it captures the cross-effect between price exposure (delta) and implied volatility. When volatility moves, the delta of a dealer's book moves with it, forcing hedging trades that have nothing to do with the price itself.
This is the mechanism behind many 'vanna rallies': as implied volatility drifts lower, dealer hedging of vanna can add a steady bid to the underlying, helping a market grind higher on falling volatility. The same channel can work in reverse when volatility spikes, accelerating declines.
Vanna flows are estimated structural tendencies, not forecasts. They help explain why the vol surface and spot move together; they are educational context, not advice.
Frequently asked
What is a 'vanna rally'?
A grind higher driven partly by dealers re-hedging as implied volatility falls: the falling-vol hedging flow adds a mechanical bid to the underlying.
How is vanna different from vega?
Vega is how an option's price changes with implied volatility; vanna is how its delta changes with implied volatility. Vanna is what turns a vol move into a hedging trade in the underlying.
Related terms
This term is part of a bigger picture: Gamma Exposure, Explained — the complete guide →