“A smoldering pile of ash.”

That’s your puts, may they rest in peace.

Over the past several sessions, downside hedges established ahead of the US election were summarily roasted like a pet at an Ohio barbecue. (I’ve got jokes!)

The post-vote rally which pushed the S&P to 6,000 was brought to you in part by familiar dynamics in the equity options space, where skew and put skew were “absolutely decimated,” to quote Nomura’s Charlie McElligott, who weighed in Monday with a quick note.

The figures, from McElligott, underscore the point. That’s your hedge melt, and it’s pretty epic.

Charlie called the election “the risk event that never was.” I’d call it the risk event that mercifully never was. While I personally would’ve preferred a different outcome, the silver lining (and I realize a lot of readers will chafe at that term in this context, but cut me some slack) is that Trump’s decisive win removed the left-most tail: Civil unrest. As SNL joked, Trump’s supporters “now know Democrats actually don’t know how to rig an election.”

With the existential worst-case ruled out (at least in the near-term) and the equities/risk best-case voted in, stocks had the green light to surge. And surge they did, leaving under-exposed investors to chase and grab for upside in options. It’s a tale as old as modern markets, which is to say younger than me, unfortunately.

“It’s becoming painfully obvious that many investors didn’t capture enough of the rally into- and out of- the election due to risk-management limitations and now we see evidence of FOMO-chasing at all-time highs,” McElligott wrote.

What’s the flip side of cratering skew/put skew in a melt-up? Rapid call skew steepening, as the left-behind try to catch a moving train through OTM upside. “Just get me exposed!” Note Charlie’s annotation: That kind of behavior can manifest as “spot up-vol up,” a counterintuitive conjuncture that often proves unstable.

Does this mean it’s all about to tip over? No. Probably not. “We’re just not ‘long enough’ quite yet,” McElligott went on, noting that nets and grosses still need to be rebuilt, and systematic exposure percentile rankings aren’t quite at nosebleed levels (vol control is ~69%ile on Nomura’s estimates and CTA trend 74%ile).

He summed it up: “We need to get ‘longer’ first with more ‘spot up-vol up’ before we are exposed to a big pullback.”