“Doomers and boomers.”

That’s the US equity options space in a nutshell.

The description comes from — you guessed it — Nomura’s Charlie McElligott, and it’s great.

The “doomers” part refers to over-hedged downside as evidenced by the steep skew discussed here, while the “boomers” bit’s a demographic reference to the target audience for increasingly popular income products.

Those income products, you’re reminded, utilize an embedded option — a rolling, sold call — to generate a bond-like income stream from an underlying long equity portfolio. That option caps the upside on the underlying — there’s no free lunch — but that’s more than acceptable for retiring boomers who can’t trust bonds in the post-pandemic macro environment.

“Boomers are starving for retirement yield in a world where [elevated] inflation [born of] fiscal dominance, run-hot economic populism, supply chain shocks [and] tariffs has meant that fixed income” no longer performs as advertised on the 60/40 packaging, McElligott wrote.

Indeed, it’s worse than that. At various intervals in recent years, bonds were a source of portfolio volatility. Far from acting as a stabilizing buffer, they were the locus of concern for cross-asset angst.

The figure above’s from BofA’s Michael Hartnett who, in this year’s edition of the bank’s annual “Longest Pictures” series, reminded investors that “the 10-year annualized return for US long-term government bonds is currently -0.4%,” the worst ever.

A corollary is that the previously reliable negative correlation between stock and bond returns — that’d be the correlation assumption around which the 60/40 religion revolves — has proven unstable in the new macro reality.

“60/40 and bonds don’t even work as your risk-asset hedge, hence the popularity of [going] long high quality equities then overwriting OTM index call options to generate premium income,” Charlie wrote.

That overwriting flow is vol supply, and it’s keeping a lid on call skew (there’s always a seller of OTM index upside) which enhances the “no right-tail fear” optic.

On the other (i.e., down) side, investors are “obsessed with the left-tail, a byproduct of the ‘doomerism’ from AI disruption fears, private credit spillover risk and tariff uncertainty,” McElligott went on.

The resulting bifurcation’s shown above. On a two-year lookback, skew’s 99%ile while call skew is 1%ile.

Unlike discourteous, verbose me, McElligott’s kind enough to include a “TL;DR” summary of his missives which, amusingly, now appears directly below Gemini’s best efforts to summarize his notoriously challenging notes in Gmail.

The TL;DR version of the above says that “extreme focus on left-tail downside from institutional investors hedging massive legacy exposures versus the perpetual vol supply out of the massively popular phenomenon that is yield-enhancement strategies as ‘the new fixed-income’ for older generations of investors,” means the US equities options landscape “is being dominated by ‘Doomers and Boomers.'”