If and when a meaningful equity pullback finally comes calling, market participants may be “treated” to what’ll feel like exaggerated downside price action — an avalanche, so to speak.

As mentioned and discussed here briefly last week, investors aren’t sufficiently apprised of the extent to which the melt-up from the late-March lows morphed, by and by, into an unstable “spot-up, vol-up” regime.

You could intuit as much in the price action (e.g., in semis), but in order to see it, you had to look at metrics like the ratio of ATM vol for the top 10 index constituents to overall index vol or, perhaps most poignantly, call skew for the top 10 index names and the Mag7 specifically (left and right, respectively, below).

Those updated charts, from Nomura’s Charlie McElligott, continue to elicit an eyebrow raise on my end. The reversal of fortune — i.e., from no interest whatever in melt-up bets to an all-out panic grab for right-tail optionality — is quite something to behold.

“When people see ‘ho-hum’ absolute levels of SPX implied or VIX and say ‘vol’s doing nothing,’ they’re missing that all the vol is in the biggest tech names,” Charlie said Tuesday.

The issue, he reiterated, is that in the event spot equities falls out of bed one day, a ton of delta associated with those calls will need to trade, potentially exaberating the situation with an extra kicker tied to rebalancing flows from a leveraged ETF space where something like 85 cents of every AUM dollar is in tech, “tech,” semis and AI themes.

“The asymmetry is enormous,” McElligott said. “I’m of the view that once we see SPX go -2% or whatever, you’re gonna see vol pucker and move higher, as those hedging and rebalancing flows are set for fireworks, with more notional for sale the lower spot goes.”

The figure above gives you a sense of what he means. It’s a snapshot of last Thursday, and it shows you the sell-to-buy imbalance across dealer desks and market makers, leveraged ETFs and vol control strats on a big move.

“Even though this ratio has moderated” in recent days, “the skew remains heavily tilted to sell flows,” McElligott went on, in his Tuesday missive, adding that “the market is going to have a negative convexity problem” in the event of a “‘crash’ day.”