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Buybacks, FOMO, ‘Vanna Tailwind’ Prime Stocks for Year-End Rally

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The US stock market’s fundamental flows are turning increasingly bullish, which should give equities a fresh jolt once the US election is out of the way.

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As the US presidential race comes down to the wire, stocks are holding near record highs in an environment dominated by risk management concerns, with traders made wary by volatility shocks in the past two months and the upcoming string of risk events. McElligott noted that over the past week he has seen some investor flows starting to position for a rally. Unwinding hedges and increased bullish buying could then lead to a so-called “vanna tailwind” — where a drop in options volatility approaching the next big quarterly expiry in December may leave dealers having to buy back more contracts to cover short index futures positions.

 

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