The Fragile Melt-Up

The market is in a fragile melt-up characterized by extreme upside call chasing in MegaCap AI stocks and a near-total abandonment of downside hedging. This concentrated setup mirrors late-90s behavior and creates high risk for a violent reversal if equity indices break lower.

Key Takeaways

• 1.The market is exhibiting a 'fragile melt-up' where index volatility (VIX) is low, but single-stock AI volatility is extremely high.
• 2.Investors have abandoned downside protection in favor of chasing upside via MegaCap AI calls, with skew reaching historic extremes.
• 3.Leveraged ETF buying and concentrated call chasing have created an asymmetric downside setup; a 2% drop in SPX could trigger forced selling and a volatility spike.

Table of Contents

• Volatility vacation
• Depressed vols
• Not all vols are low
• All about the big ones
• Spot up, vol up
• Paradigm shift
• Inverted panic
• Resilience
• The vol divide
• Hedge further rates chaos
• Time for macro
• Fine for now, but…

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