Nomura Warns Of Large “Accelerant Flows” Into Month-End, OpEx

Another day, another rollercoaster for stocks as futures were bid overnight until the European open and selling started…

But notably, Treasury yields have “stabilized” in a narrow range after their explosive surge higher recently. Nomura’s Charlie McElligott suggests that it does feel like the worst of the “short Gamma” dynamics clearly seen in both UST futs and ED$ futs early this week are now in a “cleaner” place…

But, the Nomura strategist suggests that today’s potential fireworks inside the Equities space will more than likely be generated from the absolutely mongo-sized qtrly SPX Put Spread Collar that is being rolled, where paper needs to buy 44,600 SPX SepQ 4430 Call (on the cover) to buy the DecQ 3490 / 4140 Put Spread while selling the DecQ 4515 Call x 44,600 – the trade will lift the Street on ~$3.1B in Gamma and SELL 14.5mm in Vega.

When taking into account the almost unprecedent magnitude of the Nasdaq options Dealer “short Gamma” (-$1.1B, 0.3%ile)…and the aggregate “negative $Delta” (-$30.2B, 0.2%ile), with SPX / SPY consolidated options positioning analytics too showing Dealers in ‘short Gamma” territory and “negative Delta” territory vs spot (just less historically extreme)… we remain open to large hedge “accelerant” flows in both directions, PARTICULARLY because the macro Rates move behind this Equities Volatility spasm hasn’t yet stabilized

McElligott also warns of another “accelerant flow” risk here as the Nomura QIS CTA model now shows the signal in already “under fire” Nasdaq now at risk of dropping from the current “+100% Long” down to “+37% Long” on a break and close below 14512, which is now a realistic risk at just -~2% from spot and would be ~$14B of implied selling if triggered.

Finally, we note that “it’s different this time.”

The default response of every dip since March of ’20 has been aggressive buying/volatility shorting. Therefore, as SpotGamma notes, its surprising that the market is unable to catch that bid, given that this current setup would seem like a “fat pitch” for those short dated vol sellers. Using the 50DMA as a drawdown barometer, you can see how quickly the “buy the dip” response is.

Source: Bloomberg

However, on this recent decline there was a tepid attempt, but that bid has receded. What happens next is unclear, but SpotGamma’s view is not: we’re bullish above 4400 and bearish below.