The stage was set in the options market at the end of last week, says Marko Kolanovic, the widely followed head of derivative and quantitative strategies at J. Calls give the holder the right but not the obligation to buy. Gamma is a measure of derivative price movement.

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An uptick in realized volatility, meanwhile, is starting to cause outflows from volatility-sensitive investors, he said. Meanwhile, a pullback by bond yields, which fall as bond prices rise, could reflect short covering by speculators who had placed record bets that bond prices would decline, he said.

Falling yields and a flatter yield curve have been blamed for a selloff in financial stocks on Tuesday. The market is entering a vulnerable phase, with increased volatility potentially contributing to further equity outflows, said Kolanovic.

William Watts is MarketWatch's deputy markets editor, based in New York.

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Blame options expiration, not politics, for stock-market pullback, says top quant. By William Watts Deputy markets editor.

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