“Oh snap! Did I short into the lows?”

That’s what at least some traders thought late last week, according to Nomura’s Charlie McElligott, who on Monday highlighted an interesting nuance in the equities options space.

Last week was, of course, cruel to risk. Specifically, US shares suffered their worst weekly performance since the regional banking mini-crisis.

But as the weekend approached, call skew steepened “in all three majors, while put skew was offered,” McElligott observed.

The figures above show the dynamic in NDX (actually the ETF).

What does that mean, exactly? Well, it means traders were hedging right-tail risk into the selloff and fading left-tail risk. That’s some interesting context for Monday’s nascent snap-back trade on Wall Street.

“There is a pocket of short upside gamma overhead which could create some spiciness later,” Charlie went on, noting that there’s accelerant potential on the downside too.

The figure on the left shows you the two-sided short gamma risk. The figure on the right shows you the late-week, OTM call-buying mentioned above.

Note how McElligott distinguishes in the annotations between at-the-money overwriter call-selling and the higher-strike stuff up around SPX 5600. That latter demand is where the upside accelerant potential comes in assuming, of course, spot makes it anywhere near 5600. That’s a long way up.

“Options dealer positioning is increasingly risking a two-way negative gamma dynamic building,” Charlie wrote, summing up. On a downtrade, you have dealers short both legacy puts and freshly-established hedges around and below 5400 SPX. but as illustrated on the right, above, dealers are also short OTM calls up around 5600, which is where any rally could start to feel escalatory on hedging flows.