Bank of America flags risk of wider CTA deleveraging if Nasdaq drops another ~2%

Friday’s sharp drop in the Nasdaq likely began a more coordinated unwind in “systematic” equity positioning, and Bank of America warned that another roughly 2% decline could trigger broader deleveraging, according to a client note reported by.

The note, attributed to strategist Chintan Kotecha, said the Nasdaq-100’s 4.8% decline on Friday was the largest volatility-adjusted drawdown since October 2025 and the 13th-worst “sigma” drawdown since 1985.

Bank of America estimated that the Nasdaq-100’s commodity trading advisor, or CTA, stop-loss triggers heading into the session were about 4.3% to 6.8% lower than pre-Friday levels. That range, the note suggested, implied the most risk-averse models likely started reducing exposure on Friday.

The firm also cautioned the unwind might not be over. “We believe at least half of the CTA long base likely remains intact,” Kotecha wrote, adding that about 90 basis points to 2% additional downside could prompt broader unwinds. The note included other equity benchmarks as well, placing S&P 500 stop-loss levels roughly 40 basis points to 2.6% lower, and Russell 2000 triggers around 2% to 5% lower.

Beyond CTA futures positioning, Bank of America highlighted record activity in exchange-traded products tied to the Nasdaq-100. Its data showed leveraged and inverse ETFs sold more than $12 billion of NDX exposure on Friday, described as the largest on record. The firm also pointed to options market dynamics, saying S&P 500 gamma averaged about $6.4 billion per day through May and into June. In plain terms, gamma measures how sensitive option-related hedging flows are to price moves, and the note estimated that elevated gamma dampened realized volatility by about 1.3 volatility points over the prior month, before Friday’s move “exposed the limits” of that effect.

On the catalyst behind the selloff, the note argued that “stretched upside momentum in AI leaders reached an exhaustion point and erupted into a fragility event.” It also said CTA positioning in U.S. Treasuries remained short, with stronger-than-expected payrolls data reinforcing that stance.

Bank of America did not disclose exact firm-wide CTA exposure figures, the specific order sizes behind the ETF and derivatives flows, or the precise timing of any additional unwinds beyond the price-trigger framing. As a result, while the market has clear reference points for “if the index falls further” scenarios, the magnitude of second-round selling risk remains conditional on how quickly volatility and liquidity shift.

What to watch next is whether the Nasdaq-100 breaks through a further ~90 bps to 2% downside zone relative to Friday’s levels, and whether selling pressure begins to spill over from systematic risk-reduction into wider de-risking. Traders will also likely monitor whether the ETF flows reverse or accelerate, and whether options-related hedging demand continues to change as volatility recalculates.