Cracks Are Starting to Appear: Tail Hedges Against Hidden Leverage in Semis

Goldman Sachs traders warn that $100bn in levered semiconductor ETF exposure has created a dangerous short gamma dynamic. They recommend buying underpriced tail hedges on SMH and AI baskets to protect against a potential mechanical deleveraging event.

Key Takeaways

• 1.Total assets in levered ETFs tracking semiconductors have risen to approximately $100 billion in long exposure.
• 2.Levered products in the semiconductor sector create a short gamma dynamic requiring roughly $2 billion of daily dollar delta rebalancing for every 1% move.
• 3.Left-tail options (puts) in semiconductors are currently underpricing the risk of a mechanical de-leveraging gap event.

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