Goldman Sachs Derivatives Desk: Strong Call Option Demand, Recommends Staying Long Gold
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Goldman derivatives strategist Brian Garrett flags a strong call skew in the options market and keeps his long-gold thesis; meanwhile single-stock implied volatility has dropped to a near-four-year low, creating what he sees as a buying window ahead of Labor Day.
What is the options market leaning toward?
The market shows a pronounced call skew — demand for upside call options is heavy, while puts are virtually untouched.
This means → capital is overwhelmingly betting gold keeps rising; almost nobody is paying for downside insurance.
Garrett's advice: add upside exposure on pullbacks and sell the elevated skew premium into strength.
Why is gold rallying — and how long can it last?
Gold is up roughly 10% in August, on track for its largest monthly gain since January.
The core driver is the "debt debasement" narrative — concern that ballooning government debt erodes currency purchasing power, pushing money into gold. Market focus on this theme has risen to its highest since January, when gold realized volatility briefly hit 100 and silver's topped 300.
Garrett expects the pace of gains to slow, but the debt-debasement thesis is not fading. In plain terms = as long as markets worry that money is losing value, gold's bid stays intact.
Why has single-stock volatility fallen to "bargain" levels?
About one-third of S&P 500 constituents now have 3-month at-the-money implied volatility — the market's forecast of future price swings — below the 5th percentile of the past six months.
Rarer still: the market is pricing future 3-month vol below realized vol, a condition called "negative volatility risk premium." This has not happened in nearly four years.
This means → options are unusually cheap. Garrett's read: "long-premium fatigue" is spreading ahead of Labor Day, with half of Wall Street on vacation — a textbook window to buy single-stock vol on the dip.
Retail is bearish, the index keeps hitting highs — who is right?
The AAII bear-sentiment survey has averaged above 40 for three straight weeks, yet the S&P 500 keeps setting records and the VIX sits below 16.
This reflects a split: investors say they are worried, but the market keeps climbing.
History favors the bulls: this combination corresponds to an average S&P 500 return of +1.1% over 1 month, +2.9% over 3 months, with a ~75% win rate.
Why is the momentum factor "at war with itself"?
Goldman's high-beta basket surged 20% in early August, then gave back 15% over the following two weeks, landing near its year-to-date low.
The problem: momentum signals across different lookback windows are contradicting each other. Take the Philadelphia Semiconductor ETF (SMH) — its 2-month momentum is -13%, but its 12-month momentum is +83%.
In plain terms = the short window says "sell," the long window says "buy." Rapid winner-loser rotation is creating severe divergence in how traditional momentum baskets are composed.
Besides gold, what else does Garrett recommend?
Software sector: buy out-of-the-money calls on IGV (iShares Expanded Tech-Software ETF) expiring September 4. Rationale — positioning is light, and Salesforce's (CRM) strong results should put shorts on notice.
Exotic options structure: hold S&P 500 upside exposure triggered by CDX.IG — the U.S. investment-grade credit default swap index — breaching 50 bps.
This means → the trade bets on a divergence scenario: stocks rise while credit spreads widen. With spreads at historic lows, the payoff odds are attractive if that gap opens.
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