The equities vol space is quite interesting these days — or “really fascinating,” as Nomura’s Charlie McElligott put it Tuesday.

0DTE options are all the rage in markets and across finance-focused journalism and social media. Around half of all SPX options and nearly 60% of daily volume in SPY options is of the 0DTE variety, according to Nomura.

The proliferation of these contracts is widely seen as creating a reversion effect, suppressing close-to-close vol in the process. The charts below speak to the increasingly pervasive “intraday reversal” dynamic, which comes at the expense of intraday momentum.

The share of sessions during which US equities move in the same direction in morning and afternoon trading has plummeted.

“Traders are selling 0DTE puts into selloffs to fund free / cheap same-day calls, which has been arresting deeper morning selloffs and in turn assisting equities as they have often reversed and rallied off morning lows thereafter,” McElligott said, adding that there are myriad reasons why markets are moving away from momentum and towards the reversal dynamic illustrated above.

Market participants are “willing to short vol again as the Fed cycle seemingly turns, which is seeing dealers stuffed long gamma in longer-dated options as well,” Charlie went on.

And yet, as noted here last week, there’s demand for left-tail protection again, given the sheer number of prospective catastrophes waiting to “realize,” including the debt ceiling drama in D.C., the war, the banking stress and generalized geopolitical friction.

The result, McElligott noted Tuesday, is a “moneyness” juxtaposition. Sharpes for systematic vol-selling have been high thanks to — and because this is very self-referential, because of — the dynamics pinning spot in a narrow range, but fear of various worst-case scenarios is driving demand for “crashy downside,” as Charlie put it.

He called this “the dichotomy of steep skew, versus absolutely smashed ATM vol.”

This is, he said, “such a nuanced story,” characterized by a “chop to nowhere market” beholden to a “paralyzing ATM pin,” with short convexity risk if spot were to careen lower towards out-of-the-money strikes.