It doesn’t pay to be long vol. The opposite, in fact.

For a fleeting moment in April, it looked like equities might sustain a pullback. The US rates complex had re-priced such that Fed cuts were a relatively distant prospect (i.e., an H2 event) and the Mideast powder keg looked set to explode in earnest (i.e., a direct Israel-Iran war appeared imminent).

Suddenly, and for the first time in a long time, demand emerged for downside hedges.

Fast forward a month and traders were staring at new records for the S&P and Dow 40,000 courtesy of cooler US macro data and a dovish inflection in rates. The result: Another vol crush and déjà vu all over again.

“Owners of downside are paying theta into oblivion as their options go to zero in a market where equities index spot perpetually grinds higher and can’t sustain even a nascent pullback before the dip in spot is bought and the pop in vol is sold,” Nomura’s Charlie McElligott wrote Thursday.

The figures above evidence collapsing demand for hedges in an environment where owning vol or any kind of downside is nothing short of masochistic.

There are three key factors in play, the first is just owners of downside throwing in the towel as their hedges bleed away into worthlessness.

The second is the vol supply overhang both from traditional sources and, more recently, from the explosive AUM growth in buy-write ETFs and other yield enhancement products marketed to retail investors.

The updated figures give you a sense of the structural overhang and how AUM growth in derivative income products is contributing to it.

Third, McElligott reminded investors that the dispersion trade funds through index-level vol which is sold to fund longs in single-name vol. (You’re trying to exploit the disparity between surface-level calm and underlying churn. The accompanying flows can be self-fulfilling.)

Between those three dynamics, “it’s just a one-way equities index vol destruction event,” as Charlie put it.