Vol-selling across the equities options space was “unrelenting” late last week and early this week.

That’s according to Nomura’s Charlie McElligott, who on Tuesday reiterated that the partial unwind of a massive call spread changed the “vibe,” if not the entire game just yet.

You do need the background. You can find it here and here. Long story short, dealers got back some of their short vega when the buyer of that call spread tapped out. That helped vol calm down. “Skew and VVIX are offered,” Charlie wrote Tuesday, flagging “big VIX underperformance versus spot.”

Note from the figure on the right below that VIX’s beta to the index is still quite high on a one-year lookback. The reading denoted by the red diamond includes the just-mentioned two-session underperformance.

The figure on the left gives you a sense of the opportunity. Funds, McElligott said, are looking to “exploit the recently rich VRP off the back of 1) the shock FCI tightening [which risks] a ‘cycle-turn,’ 2) geopolitical ‘fat tails’ and 3) the legacy VIX dealer short upside convexity problem which has made index iVol so ‘squeezy'” recently.

What comes next? Well, a lot hangs on mega-cap earnings in the US. Charlie noted the potential for an extension of the vol-suppressing correlation crush dynamic in the event big tech earnings perpetuate the momentum in high quality, strong balance sheet shares against pain for economically-sensitive names and small-caps.

The caveat is the underperformance for reporters this earnings season — all reporters. If you miss, you’re getting punished severely. But even if you beat, you still underperform. That’s been the dynamic so far.

Some of that could just be cycle concerns. Maybe the mega-caps can buck the trend.

The punishment meted out to EPS and revenue misses is “likely picking up some of the market’s extreme prejudice towards anything sensitive to the credit-cycle downturn” in the wake of the recent FCI tightening impulse spearheaded by the Treasury selloff, McElligott added.