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Ahead of the Eurex Derivatives Forum Frankfurt on 25-26 February, we sat down with Sushil Krishan, Managing Director at Goldman Sachs on recent growth in Buffer ETFs, the effect this rise might have on derivatives markets and its prospects in Europe.
What is the current state of the Buffer ETF market in Europe?
Over the last three years, the asset growth in Buffer ETFs has been almost exponential, moving from virtually zero to way above $100 billion1 in the US and in Europe.
Initially there were all sorts of doubts as to whether these products would take off in Europe. People argued that the market was too small and couldn’t grow in the same way the US market did. It was very much a let's wait and see attitude.
Now, within less than a year, the European market has already grown to more than $5 billion. The demand is clearly there, and the products are perceived advantageous to investors.
These are not very new products – back in 2008/9, ETFs that essentially ran collar strategies were already being launched by some issuers, but they never grew above $20 million AuM. They were too far ahead of the curve as a product.
Now, the dynamics have shifted quite fundamentally, and investors are looking at these products quite extensively as a tool for their overall portfolio construction. In addition, as the ETF space has grown, with more retail investors taking a passive approach, more products are moving in that direction.
These products can be seen as an extension to the QIS offering which recorded tremendous growth in the past years. Banks have been very active in that market through OTC channels. Traditionally, their clients were actively managed or hedge funds, and it was not a very accessible space for retail investors. Now however, this market is starting to convert into passive investing models.
What effect will these trends have on derivatives markets?
Firstly, there will a much greater concentration in volume as the number of assets in Buffer ETFs keeps growing into the billions.
The typical structure of these funds is selling a call and buying a put with some sort of variety in strikes and maturities. The call selling generates a premium for the ETF to buy a put again. It can be structured in different ways, by distributing trading over time, or using different maturities and strikes. It gives the investors some protection on the downside and captures some of the upside. It makes the product less volatile, which is the perfect match for a more conservative and income-oriented type of investing.
What we are already observing in the US is that call selling can become so concentrated and account for such a large portion of activity that it starts influencing the market itself. In the past, call selling strategies have started to cap the market itself as more money flows into the strategy. As long as the underlying asset is increasing towards the call strike the dealer community becomes more long gamma, which caps the market with growing volumes.
On the flip side of the trade, the put buying makes the dealer community that facilitates this downside protection short gamma. This dynamic reduces volatility on the upside but increases volatility on the downside. It is already observable in the US and given that volumes are increasing in Europe we should start to see this emerging in Europe, which is a much less liquid market. It is going to be very interesting to see how these dynamics unfold in the coming years and the effect they have on the derivatives ecosystem.
What are the main challenges to growing the European market?
There is always a big difference between any European market and its US equivalent. Europe is much more fragmented than the US, which is a very concentrated market for trading. There are also traditional differences in retail investing. The US is a much more independent and equity focused investment culture, while in Europe you need institutional interest to gain significant asset growth.
For ETFs more specifically, there is also a significant difference in how these vehicles are constructed. In Europe, to be an ETF, issuers have to use the UCITS framework, which limits what a fund can do to a very high degree.
In the US, we are seeing Buffer ETFs of high volatility and performing single stocks like Nvidia. It is very hard to do something like that in Europe, if not impossible, due to the diversification rules in the UCITS framework. Those restrictions don’t exist in the US.
So, the spectrum of these products in Europe is set to center much more around overlay strategies on a diversified basket.
The question remains though: will insurance companies, pension funds and corporate clients start to buy these ETFs where the overlay strategy is incorporated, instead of buying the assets and running an overlay strategy themselves?
That brings us back to the different investor bases in Europe and the US, because in the end that is where the volume will be generated. I believe that in around a year this will start to accelerate. One and a half years ago, total assets in Buffer ETFs were less than a billion across all the funds in Europe. That has since grown by about 5-10 times1 within a very short period and is clearly being driven by institutional adoption. The question then is what happens to the other overlay strategies? Will we see a reduction in the ones run bilaterally for institutional clients with the banks, as that activity transfers to ETFs?
[1] Source: GS GIR as of Feb 2026
Visit the panel at Derivatives Forum Frankfurt on 25 February from 17:15-18:00 CET
Strategic Overlays with ETF Derivatives and Buffer ETFs: Enhancing Risk-Adjusted Returns
This panel will explore how ETF derivatives and buffer ETFs are used to implement overlay strategies that improve portfolio efficiency, manage downside risk, and optimize capital. The conversation will highlight practical applications across asset classes, with insights from institutional investors and product specialists.
Moderator: Radi Khasawneh, Derivatives Editor, FOW
Speakers:
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