A few readers have asked, both in comments posted publicly and in emails, about the conspicuous absence of media vol coverage amid a pullback in US shares which pushed the S&P 10% lower from record highs this week.

One reason (the reason) for the ostensible omission of stories about volatility during the “Trump correction” (and spare me any grief: I didn’t christen it the “Trump correction,” the mainstream financial media did) is that there aren’t (m)any compelling vol stories to tell.

I suppose you could argue that’s a story in itself — i.e., a story about why vol wasn’t a story — but that feels a little circular. Nevertheless, I thought I’d mention it Friday.

A defining feature of the August 5, 2024 vol event, the post-Labor Day aftershock and the December FOMC trade, was the outperformance of both vol and vol-of-vol. The scatterplots below, from Nomura’s Charlie McElligott, give you some context for those events versus the current environment.

As Charlie’s humorous annotations (“womp, womp”) make clear, vol just wasn’t the story here, and certainly not to the extent it was in Q3 and Q4 of 2024, when dealers struggled to recycle risk from the VIX upside they were short to clients.

“[The] VIX options market maker short calls trade is currently a non-event because ‘sticky higher’ VIX and VVIX have made for an unattractive trade,” McElligott wrote Friday, adding that the down-trade in stocks “was never a corr-1 shock.”

That latter point’s important — it gets to why vol struggled to outperform its relationship to spot. Remember, dispersion can tamp down index vol, which is to say when you get a lot of performance bifurcation, it’s conducive to, and in some sense synonymous with, depressed correlation. You need that “corr-1” shock dynamic for a real fireworks show, colloquially speaking.

The figure on the left, above, gives you some context for the muted nature of the uptick in correlation over the last few weeks. The figure on the right shows you how pronounced performance disparity was over the same rolling window.

Remember, the dispersion trade — and this is a stylized description — funds single-name vol longs with index-vol shorts. That can be self-fulfilling, and as Charlie wrote Friday, the trade “continued to work throughout this selloff [and] that’s another reason why the vol space hasn’t been all that affected by [the] unwinding in crowded single-name thematic consensus trades.”

The figure below’s particularly instructive vis-à-vis the difference between this selloff and the August 5 vol shock. I assume you don’t need an annotation.

Wider dispersion — and thereby unbothered long dispersion performance — served to put downward pressure on correlation in recent weeks (i.e., put a ceiling on it), and that’s “a substantial input which has kept index vol so low as well,” McElligott said, reiterating the key point.

Between that and diminished demand for downside hedges (i.e., skew and put skew fading away lower, presumably with some monetization into a selloff many traders simply don’t believe will last), as well as the exhaustion of systematic de-leveraging and the petering out of unwinds in crowded trades, all help explain why, as Charlie put it, “vol generally snooz[ed] through the most recent escalation of the equities selloff.”