Nobody Owns The Right Tail
iMAGine we hold
First real up candle in weeks for MAG, right off range support. When the heavyweights turn, it matters.
Source: LSEG Workspace
Too much fear, and too little right tails
Friday poetry by McElligott: The extremely steep skew, rich downside in index puts, elevated upside in VIX, and high vol-of-vol from persistent over-hedging, looks increasingly exposed to a vol melt lower.
Despite recent de-grossing, spot equities refuse to break down. If the tape continues to hold, the setup favors a squeeze higher in equities, a rally investors likely under-own. Nobody owns the right tail.
And if the market lifts, systematic overwriters may be forced to chase as calls trade through their strikes.
Source: Nomura
Zero upside fear?
The right tail has been crushed, with index call skew in full crash mode as “yield enhancers” aggressively sell upside premium.
The question now: could the next move be spot up, volatility up?
Source: Nomura
Lot of put love
Will all that premium go to waste? Don’t forget: theta bleeds, puts decay, and as downside optionality evaporates, dealers are forced to buy back deltas. That’s how hedges quietly turn into fuel.
Source: Citadel/Rubner
That downside protection
Skew has surged and remains at rather elevated levels. Chart shows VIX vs SDEX index.
Source: LSEG Workspace
Vol players
With 1-month volatility cratering again and 3-month volatility continuing to grind lower, vol-control strategies are generating roughly +$8.1bn of U.S. equity buying as they re-scale exposure.
Source: Nomura
Works both ways
SPX liquidity has fallen off a cliff. In this environment, even small moves risk being magnified.
