BackQuant Glossary
Charm
A second-order Greek measuring the rate of change of delta with respect to time. Charm flow becomes significant on Friday afternoon as short-dated options decay rapidly, forcing dealers to re-hedge in spot.
Related terms
Delta
An option Greek measuring how much the option price changes per one-dollar move in the underlying. A call with delta 0.5 gains roughly fifty cents per one-dollar rise in spot. Delta also approximates the probability the option finishes in-the-money.
Hedge
A position taken to offset risk in another position. Long spot can be hedged by buying puts. A short call book is hedged by buying delta in the underlying. Hedging defines market-maker behaviour and is the mechanical reason gamma exposure matters.
Short
A position that profits when price falls. Selling spot, going short a perp, owning a put, or being short a call are all short positions. Short positions in crypto carry tail risk because upside is unbounded.
Spot
The current cash market price of an asset for immediate delivery. Spot is the underlying reference for derivatives pricing. Crypto spot trades 24/7 across hundreds of venues, with index prices aggregating across the deepest ones.
Call Option
A contract giving the holder the right (but not the obligation) to buy the underlying at a fixed strike price before or at expiry. Buyers profit when the underlying rises above the strike plus premium paid. Sellers collect premium and have an obligation to deliver if exercised.
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