If you’re curious, the realization of a latent, mechanical equities bid from vol control cohorts likely provided material support for stocks in recent days.

Between explosive AUM growth for retail products with embedded options (e.g., buy-write ETFs), sundry VRP strats, the dispersion trade and so on, there’s a structural vol supply overhang.

Throw in the preponderance of 0DTE option-selling in the ballooning QIS space, and you’re left with a market (i.e., spot equities) that can’t actualize implied moves.

“All that dealer long gamma imbalance is pinning realized vol as we simply can’t push through the distribution,” Nomura’s Charlie McElligott wrote Tuesday, in his first note back from a summer break.

The implication: A “massive resumption of mechanical reallocation flows into equities from vol control [and] target vol entities,” Charlie said.

The figure on the left gives you some context: Vol control’s implied equity allocation is now 97%ile on a three-year window. The figure on the right shows the implied single-session change in notional exposure, which was dialed up into the realized vol bleed.

And yet, it’s not all quiet on the Western front. Notwithstanding “spot-up, vol up” sightings — as more new all-time highs rekindled right-tail “risk,” precipitating call-buying and stop-ins for overwriters as spot moves through their short call strikes in a self-fulfilling prophecy — McElligott noted that mega-cap tech still has some left-tail, crash-down potential.

“The prior multi-month skew steepening in US equities index, as well as [the] local thematic reversal with small-over-large and cyclical value-over-secular-growth, has allowed for a forward ‘elevator up, escalator down’ path to develop in the crowded Nasdaq / AI trade,” he wrote, pointing to the figures below.

The MTD spread between realized vol on down days for the Nasdaq 100 and up days is now 96%ile on a four-year look back.

“So you are getting that normalization in market behavior to larger vol moves on selloffs at least in crowded mega-cap tech,” Charlie remarked.

McElligott also noted that vol outperformed on Monday in the wake of a wild weekend for domestic politics in the US. “VIX calls remain in demand as more election volatility premium [gets] built in,” he wrote, citing the “shocking assassination attempt” on Donald Trump.

We were “mere millimeters away from a generational market shock,” he went on, “hence the demand for VIX upside in a world long asset beta at all-time highs and short vol and convexity.”