Key Takeaways
- • Goldman Sachs' hedge fund and derivatives teams warn that zero-day-to-expiry (0-DTE) options have grown to massive scale and are artificially suppressing U.S. stock market volatility, with the S&P 500 experiencing intraday fluctuations of less than 1% for 27 consecutive trading days—the longest such period since the pandemic.
- • Tony Pasquariello, Head of Hedge Fund Coverage at Goldman Sachs, characterizes the current market as a structural stalemate between opposing forces: rising oil prices and higher interest rates pressuring stocks downward, while corporate earnings growth provides support, resulting in a compressed trading environment that is "not easy right now."
- • Goldman Sachs derivatives strategist Brian Garrett identifies volatility harvesting strategies tied to 0-DTE options as the primary market structure force artificially constraining price discovery, with zero-day options reaching record trading volumes in February 2025 according to Bloomberg reporting.
- • Once a macro catalyst emerges—whether from September Federal Reserve rate hike expectations or fiscal sustainability concerns—the compressed volatility energy locked in by these options strategies will be released rapidly, creating potential for sharp market dislocations.
- • Despite the structural constraints, Goldman Sachs identifies technology and energy sectors as the best stock opportunities in the current environment.
Summary
The U.S. stock market is experiencing an unusually prolonged period of suppressed volatility driven by structural forces in the derivatives market, according to warnings from Goldman Sachs' senior macro and derivatives teams. The S&P 500 has recorded intraday fluctuations of less than 1% for 27 consecutive trading days, marking the longest stretch of low volatility since the pandemic. Goldman Sachs attributes this artificial calm directly to zero-day-to-expiry (0-DTE) options strategies that have grown to massive scale, effectively "locking in" the market's intraday range. These derivatives expire worthless by day's end unless underlying positions move sharply, creating powerful incentives for market participants to manage volatility within narrow bands.
Tony Pasquariello, Head of Hedge Fund Coverage at Goldman Sachs, characterized current market dynamics as a structural deadlock. Stocks face headwinds from rising oil prices and elevated interest rates, while simultaneously drawing support from robust corporate earnings growth. This tug-of-war between bulls and bears has produced a genuine trading stalemate. Adding to this tension, Goldman Sachs economist David Mericle has incorporated a 25 basis point rate hike at the Federal Reserve's September FOMC meeting into his forecast, though he acknowledges the economic data does not provide strong fundamental support for such action. Market sentiment has deteriorated to its lowest point of the year, while fiscal sustainability risks remain a latent concern.
Brian Garrett, Goldman Sachs' derivatives strategist, specifically identified volatility harvesting strategies represented by 0-DTE options as the mechanical force constraining price discovery. Bloomberg reported that zero-day options trading reached record volumes in February 2025, underscoring the structural scale of this phenomenon. Garrett's analysis suggests this compression is not indefinitely sustainable—once a meaningful catalyst emerges from either monetary policy decisions or fiscal concerns, the accumulated volatility energy will decompress rapidly and potentially violently.
Despite the constrained macro environment, Goldman Sachs recommends technology and energy sectors as the most attractive equity opportunities for investors navigating the current regime. The firm's positioning suggests conviction in sector-specific fundamentals even as it warns of broader market structure fragility.
Tony Pasquariello, Head of Hedge Fund Coverage at Goldman Sachs, characterized current market dynamics as a structural deadlock. Stocks face headwinds from rising oil prices and elevated interest rates, while simultaneously drawing support from robust corporate earnings growth. This tug-of-war between bulls and bears has produced a genuine trading stalemate. Adding to this tension, Goldman Sachs economist David Mericle has incorporated a 25 basis point rate hike at the Federal Reserve's September FOMC meeting into his forecast, though he acknowledges the economic data does not provide strong fundamental support for such action. Market sentiment has deteriorated to its lowest point of the year, while fiscal sustainability risks remain a latent concern.
Brian Garrett, Goldman Sachs' derivatives strategist, specifically identified volatility harvesting strategies represented by 0-DTE options as the mechanical force constraining price discovery. Bloomberg reported that zero-day options trading reached record volumes in February 2025, underscoring the structural scale of this phenomenon. Garrett's analysis suggests this compression is not indefinitely sustainable—once a meaningful catalyst emerges from either monetary policy decisions or fiscal concerns, the accumulated volatility energy will decompress rapidly and potentially violently.
Despite the constrained macro environment, Goldman Sachs recommends technology and energy sectors as the most attractive equity opportunities for investors navigating the current regime. The firm's positioning suggests conviction in sector-specific fundamentals even as it warns of broader market structure fragility.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.