A little over a month ago, I revisited a familiar, but slightly esoteric topic: Ballooning AUM in mass market, yield-enhancement/income products and specifically, ETFs with embedded options-selling strategies.

I’ll spare you any torturous recapitulation in favor of simply reiterating that total assets for such products hit $60 billion in 2023.

As I put it last month, the associated flows don’t exist in a vacuum. They’re impactful. And increasingly so.

With that in mind, Nomura is now highlighting similarly explosive growth in AUM for single-name income products. The figure below illustrates the point.

“[The] majority of these didn’t even exist six months ago, yet now we’ve seen AUM grow [from] $280 million to [almost] ~$1.8 billion over that same period,” the bank’s Charlie McElligott noted, citing colleagues Henry Homes and Joanna Wang.

This is, Charlie remarked, just another manifestation of the “hot ‘sell options for income’ asset-gathering space,” and it’s dominated by just three products which write calls on Tesla, Coinbase and Nvidia.

Hilariously (and this speaks to the above-mentioned impact of the flows associated with these income products), the attendant vol suppression “may be creating [a] ‘cheap vol into earnings'” dynamic, as McElligott put it, on the way to quoting his colleagues, who explained the setup using the Tesla product as an example.

I’ll present the excerpt below, penned by Nomura’s Henry Homes, without further comment:

While the 40k TSLA option that TSLY sells each month doesn’t sound enormous in the context of the daily option volumes, remember that 90% of TSLA option volumes are <1wk expiry options so selling 40k 1month calls is a very real trade. So it shouldn’t be a surprise that the explosion in assets of these over-write funds coincides with some of the lowest implied earnings moves we’ve seen of the past 2yrs in TSLA and COIN. Given the battle-ground nature of both COIN and TSLA, in particular, we like owning options to express directional views in each stock into earnings.