How a dealer’s delta changes when volatility moves, the reason a falling VIX can lift a market on no news.
Vanna is how much an option’s delta changes when implied volatility changes. Gamma answers "how does my hedge change when price moves"; vanna answers "how does my hedge change when volatility moves, even if price does not".
Dealers are typically short puts to the market. When implied volatility falls, the delta of those puts falls too, which leaves the dealer over-hedged, short more underlying than the position now requires. Closing that gap means buying. No news, no flow, no view: a mechanical bid produced by volatility declining.
The classic case is the session after an event passes without incident. The event premium comes out of implied volatility, vanna converts that into dealer buying, and a market drifts up on a day with no headline to explain it. The same mechanism runs in reverse when volatility spikes.
Most gamma exposure tools stop at gamma. Vanna needs implied volatility per contract and a second derivative on top of it, so it is more work to compute and easier to leave out, which is also why a book can look calm on a gamma chart and be carrying a large volatility-driven hedge underneath.
Dealer gamma across the expiry curve, and a written read every session.
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