A Goldman Sachs executive is warning that high levels of leverage in the market could spark volatility in the artificial intelligence and semiconductor sectors. Shawn Tuteja, a managing director overseeing ETF volatility trading, says the market is underestimating the potential for two-way volatility.
He explains that leveraged ETF products offering 2x or 3x exposure to semiconductors create short gamma-meaning they must buy more when the underlying goes up and sell heavily when it goes down. This mechanism can amplify normal moves: a fundamental negative event that should trigger a 3% drop could quickly turn into a 10% decline. Tuteja notes that while he expects such volatility, he does not believe the market is in a bubble.