PremiumGoldman: Investors Brace For Crash As Desk Activity Is Indicative Of VIX At 35
Believe it or not, this market has been unusually stable: as Goldman's Brian Garrett writes in his weekend prep report, we just traded in one of the tightest two month ranges in history, with the 2month high/low closing range registering 3.7%, less than half the 20 year median of 8.6%.
There's only one problem: what happens at the index level is not what is going on at the single stock level, where volatility is off the charts and skew has rarely been greater. Indeed, Garrett notes that while boring doesn’t begin to describe the index over the last two months, almost every week he mentions that the experience for those in the trenches has been anything but, and as shown below, the realized vol spread of the average single stock vs index just broke to the highest level on record with avg stock realizing ~25 vol points over!
The Goldman trader then mocks the unprecedented (and bizarre) calm at the index level, writing that discomfort under the surface is (finally) manifesting in our weekly data, with the latest institutional activity (selling / shorting / de-grossing / de-netting) more suggestive of a VIX at 35 vs a VIX where it currently trades at 19.
And as we warned last week when pointing out the sudden spike in degrossing, Goldman chimes in that investors continue to take down risk in what feels like preparation for the index to finally reflect what single stocks have been saying for a while (i.e. “something’s got to give”).
Before we drill a little deeper into some of Garrett's observations, here are his preferred trades as we enter the week when Nvidia finally reports earnings (after the close on Wednesday):
- Long spx put spreads (short gamma + CTA thresholds are too close to not take a shot)
- Short XLP (via put spreads)
- Long ndx>iwm for a trade (positioning fatigue)
- Long receivers (cheap placeholder for “what if they might need to cut more?” trade)
- Collar overlays vs single stocks (single stock vol skew still favorable)
- Long brent upside (do-not spread these calls) …
- Long critical minerals (still)
Which brings us to the notable highlights Garrett flagged in the lastest Goldman Weekly Rundown note (available to pro subs):
1. Prime Brokerage: US equities net sold this week (and sold 3 of the last 4 weeks). TMT made up 70% of the net selling (not a typo), with clear bifurcation across GICS industries as funds continue to sell software & internet en masse vs buy semiconductors and memory.
2. Primer Brokerage (again): for a week where “nothing happened,” Garrett highlights that global equities saw the largest net selling since liberation day (not a typo) driven by short sales as long flows finished relatively muted, while gross activity continues to increase also driven almost entirely by short sales … and its not just the HF community hitting bids (see point 3). 7 of 11 sectors were net sold, led in $ terms by Info Tech, Comm Svcs, Financials, and Materials, while Energy and Health Care were the most $ net bought
3. One delta: the long only community finished the week puking, 4bn better for sale (and $10bn better for sale month to date. According to the Goldman trader, this is one of the largest monthly sell skews for asset manager / long only community in 4 years – other large sell months occurred during Aug2022 (-18bn), Mar2024 (-14bn), and Mar2025 (-22bn).
4. Futures: “signs of fatigue” starting to manifest in the rush to own cyclical exposure; the Goldman futures team highlights liquidation of Russell deltas (had been the fomo trade of the year) making the call for tactical near term NDX outperformance
5. Derivatives (i): Feb expiry came and went without much to highlight (though tje VIX expiry on Wednesday gave back dealers a lot of VIX crash which led to the post SQ rip); the evolution of gamma positioning continues to mature, as the increase in vol “income” products creates more impact than S&P SQ expiries.
6. Derivatives (ii): similar to how professional investors are positioning their delta, the option market is getting more defensive: SPX one month skew trades at the steepest level in 4 years, driven both by the expensiveness of downside puts and the cheapness of upside calls … and a Goldman desk anecdote, "we still have seen zero spx call demand on the trading floor "
7. Derivatives (iii):: the gamma dynamic is something Garrett can’t unsee as we test the lower end of this extremely tight range, and gamma flips negative on a minimal sell off, which also coincides with the gs CTA momentum thresholds … this, the Goldman trader writes, "is extremely important"
8. Derivatives (iv): megacap tech stocks are no longer “crashing higher” and the retail community is showing signs of exhaustion in buying upside. Over the last month, call volumes in mega cap stocks has fallen to levels last seen in 2017. As Garrett puts it, "its less fun chasing call options when they stop working (and one experiences the true meaning of “theta decay”)"
9. Baskets: the Goldman team launched the S&P’s newest index SPXXAI (ex-AI) which is a gs exclusive - this excludes all companies in SPX considered AI enablers and is more liquid than other index proxies.
More in Brian Garrett's full "Weekend prep" note and must-read Goldman Weekly Rundown available to pro subs.
