They’re hedging downside, but nobody’s especially concerned about missing the boat on a prospective new (year) melt-up.

That was the message from the equities options space on the first trading day of 2025, according to Nomura’s Charlie McElligott, who on Thursday flagged elevated (on a one-year lookback anyway) skew and put skew, while noting de minimis interest in the call wing.

As the figures below show, three-month skew and put skew are 87%ile and 72%ile, reflecting high demand for puts versus calls and for out-of-the-money puts (i.e., crash hedges) versus at-the-money “stuff,” respectively.

“Investors are continuing to focus predominately on downside [and] left-tail hedging, despite being well off peak fear from the mid- / late-December wobble,” Charlie wrote.

That’s indicative, he said, of “ongoing tension relative to the past year,” particularly in the context of an index which, despite an MIA “Santa Rally,” is still within shouting distance of record highs.

By contrast, buyers of out-of-the-money calls are scarce, as measured by their relatively expensiveness. (Option prices, like prices for anything else, are in large part a function of supply and demand, and there’s very little demand for right-tail “protection” right now.)

“They only want to sell / overwrite SPX OTM upside,” McElligott went on (emphasis mine).

The associated supply overhang (i.e., call-selling for income) has served to crush SPX call skew which, as shown above, is just 7%ile.

That, Charlie remarked, could mean that some market participants would be caught flat-footed (i.e., underexposed) to a rally resumption. “Any outsized rally to start 2025 could lead to a ‘grab and chase’ that would feed upside instability with calls looking ‘cheap,'” he wrote.