Coming out of a turbulent week both for US equities and domestic politics, and looking ahead to mega-cap “tech” results, it’s worth briefly highlighting the earnings seasonal in vol and correlation.

I try to make a point of revisiting this every quarter when reporting season starts. Sometimes I forget. Not this quarter.

As regular readers — and those steeped in markets more generally — are acutely aware, part and parcel of suppressed vol is a correlation crush. Low correlation supports return dispersion creating an opportunity: You sell index vol (surface-level calm) to fund long vol in single-names (underlying churn). That can be self-fulfilling, particularly when considered with other sources of persistent vol supply.

Vol picked up last week amid a rare stumble for big-tech. According to Nomura’s Charlie McElligott, that could “provide a short vol / short skew / short correlation opportunity… into the meat of earnings season, with big-tech releases concentrated over the next two weeks.”

The figures above show you the seasonality. McElligott’s annotation tells the story, but he included some additional color just in case.

During earnings, the market exhibits “a large dispersion effect, as correlation goes lower [with] earnings winners and losers [moving] in opposite directions,” he wrote.

As noted above, that tends to tamp down index-level vol, particularly to the extent it’s being aggressively exploited with index vol sold as a funding leg in dispersion books.

If we do see an extension of Monday’s “snapback” rally, enjoy it while it lasts. The seasonal gets pretty challenging come August.