Understanding Vanna Analysis: Market Dynamics & Trading Strategies
Vanna analysis reveals how volatility changes affect delta, creating predictable market patterns. This presentation explores positive and negative vanna regimes and their trading implications.
Positive Vanna: The Stabilizer
Creates Stability
Dominates in low-volatility environments, creating smoother price action.
Well-Paved Road
Price movements become more controlled and predictable.
Technical Reliability
Support and resistance levels become more respected.
Resistance Zones
Peak positive vanna areas act as extreme resistance where price may reverse.
Positive Vanna
Rising Volatility
Delta increases, creating selling pressure that drives prices downward.
Falling Volatility
Delta decreases, creating buying pressure that supports prices upward.
Dealer Response
Dealers sell into volatility spikes, creating resistance positive Vanna spikes.
Trading in Positive Vanna Environments
Range Trading
More favorable for range trading strategies and technical analysis.
Mean Reversion
Mean reversion strategies become more effective as prices tend to stabilize.
Position Sizing
Can be more aggressive due to more predictable market behavior.
Technical Levels
Support/resistance levels maintain higher reliability for trade planning.
Negative Vanna: The Destabilizer
Creates Instability
Dominates in high-volatility environments, amplifying price movements.
Rough, Twisting Roads
Price paths become unstable with sharp, unpredictable turns.
Technical Unreliability
Support and resistance levels become easily broken.
Support Zones
Peak negative vanna areas act as extreme support where price may reverse.
Negative Vanna
Rising Volatility
Delta decreases, creating buying pressure that drives prices upward.
Falling Volatility
Delta increases, creating selling pressure that pushes prices downward.
Dealer Response
Dealers buy into volatility spikes, creating support checkpoints.
Trading in Negative Vanna Environments
Momentum Trading
More favorable for momentum trading strategies that capitalize on volatility.
Trend Following
Trend-following strategies may outperform mean reversion approaches.
Position Sizing
Reduced sizing recommended due to higher volatility risk.
Technical Levels
Support/resistance levels have lower reliability for trade planning.
Positive Vanna + Call IV Greater Than Put IV

Intensified Effects
Call-side IV dominance intensifies volatility reactions.

Rising Volatility
Stronger selling pressure creates sharper downside moves.

Falling Volatility
Stronger buying pressure leads to faster upward rebounds.
Positive Vanna + Call IV Lesser Then Put IV

Dampened Effects
Put-side IV skew reduces volatility reaction intensity.

Rising Volatility
Selling pressure exists but acts less aggressively.

Falling Volatility
Buying pressure occurs but remains more muted.
Negative Vanna + Call IV Greater Than Put IV
This combination creates the most chaotic, highly unstable price movements with sharp turns and quick accelerations.

Amplified Volatility
Call-side IV skew amplifies already chaotic volatility reactions.

Rising Volatility
Triggers sharp buying flows, creating aggressive upside moves.

Falling Volatility
Initiates substantial selling pressure, leading to steep declines.
Negative Vanna + Call IV Lesser than Put IV
This combination still produces volatile price action but with more controlled movements and a greater tendency to remain range-bound.

Dampened Chaos
Put-side IV skew dampens extreme volatility effects.

Rising Volatility
Creates buying pressure, but in a more controlled manner.

Falling Volatility
Generates selling pressure, but with more muted effects.
Peak Vanna Levels: Peak Positive Vanna
Rising Volatility Effect
  • Delta increases → sell pressure
  • Acts as resistance checkpoint
  • Price likely to stall or reverse downward
  • Extreme resistance with high reversal probability
Falling Volatility Effect
  • Delta decreases → buy pressure
  • Acts as consolidation checkpoint
  • Price likely to stabilize or bounce higher
  • Less powerful resistance, potential breakthrough point
Peak Vanna Levels: Peak Negative Vanna
Rising Volatility Effect
  • Delta decreases → buy pressure
  • Acts as support checkpoint
  • Price likely to stabilize or move higher
  • Creates extreme support with high reversal probability
Falling Volatility Effect
  • Delta increases → sell pressure
  • Acts as consolidation checkpoint
  • Price likely to be pushed lower
  • Less powerful support, potential breakdown point
Vanna-Gamma Alignment: Powerful Reversal Zones

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1
Alignment Creates Power
If peak Vanna - Gamma coincide, reversal probability increases dramatically.
2
Positive Vanna + Positive Gamma
Creates strong sell pressure and potential reversion to lower prices.
3
Negative Vanna + Negative Gamma
Creates strong buy pressure and reversion higher.
Confirmation Requirements for Breakouts
For Upside Continuation
  • Peak positive Vanna levels must shift higher
  • GVEX must increase or total positive GVEX exposure must rise
  • GEX peak positive must increase
For Downside Continuation
  • Peak negative Vanna levels must shift lower
  • GVEX must decrease or total negative GVEX exposure must increase
  • GEX peak negative must decrease
Without these confirmations, breakouts or breakdowns are less likely to sustain.
Trading Implementation: Identify Vanna Regime
Determine Dominant Vanna Profile
Take note of the total positive vs. negative Vanna exposure. Compare against total Vanna exposure to get percentage.
Assess IV Skew
Compare call IV vs. put IV. Determine if skew supports or dampens Vanna effects.
Identify Market Environment
Evaluate if volatility is rising or falling. This determines how Vanna will impact price.
Trading Implementation: Locate Peak Vanna Zones
Identify Critical Levels
Locate strikes with highest positive vanna (resistance). Find strikes with highest negative vanna (support).
Note Price Position
Determine where current price is relative to these levels. This helps anticipate potential moves.
Monitor Price Approach
Assess volatility environment as price nears peak levels. Prepare for potential reversals.
Peak Positive Vanna
Short Positions
Consider shorts as price approaches these levels. Higher probability in rising volatility.
Tight Stops
Use tight stops above the peak level. Protect against false breakouts.
Target Lower Support
Set profit targets at lower support zones. Follow the vanna road downward.
Peak Negative Vanna
Long Positions
Consider longs as price approaches these levels. Higher probability in rising volatility.
Tight Stops
Use tight stops below the peak level. Protect against false breakdowns.
Target Higher Resistance
Set profit targets at higher resistance zones. Follow the vanna road upward.
Key Takeaways: Vanna Analysis Framework
1
Regime Identification
Positive vanna stabilizes prices in calm markets. Negative vanna amplifies volatility in turbulent markets.
2
Peak Levels
Peak vanna levels serve as extreme support or resistance zones with high reversal probability.
3
Confirmation
Watch for shifts in peak vanna levels and changes in GEX/GVEX exposure to confirm breakouts.
4
Risk Management
Adjust position sizing based on vanna regime. Set tighter stops when trading against dominant flows.