“Stocks should be down more.”

That’s something you might’ve heard in this week’s earliest US equities trading.

After all, the world’s ending. Forget Donald Trump’s pre-production plans for SEAL Team 6: Raiders of the Lost Uranium, the sixth seal’s open in Tehran! Did no one tell SPX, which was a mere ~50bps lower towards noon on Monday?

Stocks have indeed heard the news, but for now anyway, “this is an equities vol event, not a spot event,” Nomura’s Charlie McElligott said. The figures below illustrate the point.

The VIX outperformed its typical relationship to spot equities late last week (figure on the left), and vol-of-vol did the same vis-à-vis the VIX (figure on the right).

“The one-day move in vol-of-vol relative to the one-day VIX move shows abnormal concerns around non-linear tail risk,” McElligott said, noting that the VVIX’s “screaming” move from “an already stressy mid-120s to an >140, full-tilt freakout in the final 30 minutes of Friday’s cash equities [session] reeked of dealers hedging” a relentless bid for wings.

In other words: As market makers’ own hedging needs grew in the face of escalating client / end-user demand for tail-event expressions, dealers were forced buyers of VIX futs and skew and/or sellers of equities futs into last week’s close.

“That final 30 minutes Friday felt like some of those core left-tail days in my career experience, despite the somewhat sleeper-ish topline spot moves,” Charlie said.

That speaks to the above-mentioned disparity between the relatively tame move in spot — particularly on a close-to-close basis — and the stress on display in the vol complex.

The figures below give you some sense of relative demand both for crash protection (left) and downside protection in general (right).

“Equities index options skew, and particularly OTM crashy downside [went] absolutely bonkers,” McElligott wrote.

Relatedly (and this is for those of you fluent in Greek), the VIX dealer positioning profile showed a 0%ile overall negative gamma imbalance as the new week dawned. It was 1%ile for calls only. Suffice to say there was meaningful VIX accelerant potential through the dealer hedging channel. That’s latent until it isn’t. 35 and 47.5 are (or at least were) key dealer short strikes.

To reiterate, the result of all this is a discrepancy between implieds and realized vol which, in addition to the optics created by the simplistic close-to-close measurement methodology (which obscures intraday swings), is still being held in check by dispersion attributable to wildly diverging fortunes across sectors and themes in 2026’s AI-disrupted equity environment. (With an added kicker from extreme energy outperformance — e.g., XLE outperforming XLK by 32ppt YTD, etc.)

You’d think a full-blown war between the US and Iran accompanied by the largest oil spike on record would be a “Corr 1” event from hell. But there again, this is an implied versus realized dichotomy for the time being.

“All this ‘wing’ hedge buying is sending implied vols to the moon, but realized vol keeps getting offset,” Charlie went on, noting that outside of oil and vol, the market still hasn’t experienced a major Iran “‘shock’ moment.”

At some point, all of this “implied,” “latent,” “lurking,” tail risk has to manifest in something other than triple-digit crude, dead Iranians and displaced Lebanese. That is, “prospective” has to become “realized” or some of this teeth-clenching will abate mathematically.

And wouldn’t you know it, extreme VIX outperformance versus spot equities on average sees the former “absolutely clobbered” from a forward return perspective, McElligott noted, referencing the backtest above.

As the table shows, there are only two exceptions: 2008 and 2020, which is to say the GFC and COVID.

So, if past is precedent, the VIX is set up to “get smoked going forward,” as Charlie put it, unless and until all the Mideast Sturm und Drang morphs into a real “economic crisis.”