As dealers turn bullish on gamma in the VIX, investors may want to take notice of potential market volatility. According to a recent chart from Nomura, the “seriously short gamma” in the VIX could indicate that dealers are preparing for increased volatility in the future.

The chart, which can be seen above, shows the VIX futures curve and highlights the significant difference between the front-month VIX futures contract and the longer-term contracts. The “gamma” refers to the rate of change of the VIX with respect to changes in the underlying market conditions. In this case, dealers are holding a large short position in the gamma of the VIX, which suggests that they expect volatility to increase in the near future.

So why might dealers be so bearish on volatility? There are several possible reasons. Firstly, the recent period of low volatility may have led to complacency among investors, who may be underestimating the potential for market turbulence. Secondly, geopolitical tensions and economic uncertainty could be contributing to a rise in volatility. Finally, dealers may be hedging against potential losses in other parts of their portfolio, such as equities or fixed income.

While the “seriously short gamma” in the VIX is certainly a bearish signal for dealers, it’s important to note that this doesn’t necessarily mean that volatility will increase immediately. The VIX is a forward-looking index, so dealers may be anticipating potential volatility in the future rather than reacting to recent market conditions.

Investors who are concerned about potential volatility may want to consider hedging their portfolios against market turbulence. This could involve buying options on the VIX or other assets, such as equities or fixed income. Alternatively, investors could focus on diversifying their portfolios and reducing their exposure to any one particular asset class.

While dealers may be bearish on volatility in the short term, it’s important for investors to keep a long-term perspective and be prepared for potential market turbulence. By hedging against volatility or diversifying their portfolios, investors can reduce their exposure to risk and protect their assets from potential market downturns.