Summary of Open Trades (5-Jun-17)

Summary of Open Trades (5-Jun-17) Price data for open level reflects the price on open date and does not necessarily reflect the price at which the trade could be executed at the date of this report. Our trades are structured to be executed on the open date and are not necessarily appropriate to execute as formulated beyond that date. Table 6: Summary of open trades as of 5-Jun-17 Trade Description Long SX5E vs short SPX Dec18 var swap Long NKY vs short SPX Dec18 var swap Long SX5E vs short SPX Dec18 put vs put Buy a 1Y ATM worst-of call on SPX & TLT Buy SPX>UKX Jun17 ATM outperformance call, conditioned on SPX lower at maturity (q{USD) Buy UKX Jun17 6650 put, sell SPX Jun17 1850 put Buy an EWZ Jun-17 40 call conditional on SPX<2200 at expiry Buy an SX5E Sep-17 95% put conditional on EUR 10Y CMS > 1.1% or < 0.3% in Mar-17 Buy 2823 HK Jun-17 90/110 strangle Buy ESTX50 Dect? 90% put contingent on EURGBP < 0.82 by Jun17 expiry 2-Dec-16 Buy SPX>UKX Jun17 5% outperformance call (qUSD) Long XLF vs SX7E Juni? ATM outperf call, contingent on SX7E higher at Jun expiry (qEUR) Buy SPX Jun17 95% put contingent on US 5Y CMS > 2.15 Buy 1x Jun-17 ATM XLF call, sell 1.8x Jun-17 ATM worst-of calls on XLP and XLU Buy Jun-17 ATM R2kK- value outperf call over EEM, contingent on EEM > 95% Buy NKY Jun17 110% Call Buy TPINSU Jun17 110-125% Call Spread Buy TPNBNK Jun17 110-125% Call Spread Buy 2823 HK Junt7 90/1 10% strangle Buy HSCEI Jun17 105-120% call spread contingent on $KRW >1200 Buy NKY-SPX Dec19 70/110% corridor variance Buy NKY Jun17-Jun18 18,500 strike FVA Long Russell 2000 vs. short S&P 500 Dec-18 var spread Buy 1x Jun17 64 call on Aug17 Brent futures, sell 1x SXEP Jun17 330 call Buy SPX 6m ATM call contingent on GLD 5% higher in 3m Long NKY - SPX Dec-18 corridor var replication Buy NDX Top20 volatility dispersion Long 1.8x vega on 1y single stock vols of UK Brexit exposed names, Short 1x vega on 1y FTSE index vol SPX Sep-17 95% puts conditional on the Syr CMS rate above 2.4% at maturity Buy QQQ Jun17 132 call , sell XLF Jun17 25 call Buy Buy-Rated MSCI A-shares stocks & hedge with puts Buy A-shares with highest MSCI impact & hedge with put Own Japan stock vol via gamma weighted vol dispersion Buy CNOOC Jul-17 95% puts vs. sell HSCEI 95% puts Buy CH Merchant Bk Jul-17 18.5/17 put spread vs 22 call Buy SX5E Dec17 3800 calls contingent on EURUSD > 1.1 at expiry Buy 1.5x KOSPI2 285 puts vs. short 1x $KRW 1160 call Buy EEM Aug17 39.5 put and sell EEM Aug17 37 put Buy Dec17 105% call on an equally weighted basket of SX7E, SXAP, SXPP & SXEP, sell Dec17 ATM worst-of call on the same Buy NKY Jul-17 19500 puts vs. short Dec-17 17500 puts Short GILD $55-$62.5-$67.5 put spread collar Open Date 5-Jul-16 5-Jul-16 5-Jul-16 18-Jul- 17-Oct- 17-Oct-16 24-Oct-16 14-Nov-16 21-Nov-16 2-Dec-16 2-Dec-16 5-Dec-16 5-Dec-16 5-Dec-16 02-Dec-16 02-Dec-16 02-Dec-16 02-Dec-16 02-Dec-16 02-Dec-16 02-Dec-16 5-Dec-16 9-Jan-17 23-Jan-17 13-Feb-17 27-Feb-17 14-Mar-17 14-Mar- 20-Mar- 23-Mar- 23-Mar- 10-Apr-17 24-Apr-17 24-Apr-17 8-May-17 8-May-17 15-May-17 15-May-17 15-May-17 16-May-17 AAS Open Level 6.1 vols 5.7 vols 0.00% 0.9% 2.0% 2.6% 1.7% 2.1% 5.55% 1.63% 2.05% 1.20% 1.04% 2.10% 2.30% 1.83% 3.30% 3.20% 5.90% 1.20% 1.50% 21.5% 3.9pts 00% 4.00% 1.0% 32.3vols 0.57% 44% 44% 5.8% 0.77% 0.10% 3% 0.3% 6% 6% 0.0% 3% Expected Trade Term Dec-18 expiry year Jun-17 expiry Jun-17 expiry Jun-17 expiry Sep-17 expiry Jun-17 expiry Dec-17 expiry -17 expiry -17 expiry -17 expiry -17 expiry -17 expiry -17 expiry -17 expiry -17 expiry -17 expiry -17 expiry -19 expiry -17 expiry -18 expiry -17 expiry Jul-17 expiry Dec-18 expiry 8 expiry van- 4-Mar-18 Sep-17, expiry Jun-17 expiry Jun-17 expiry Jun-17 expiry Mar18 expiry Jul? expiry Jul? expiry Dec? expiry Jul? expiry Aug17, expiry Dec? expiry Jul? expiry Sep-17 expiry Rationale Investors should re-assess attractiveness of popular and (typically) technically motivated longer- dated RV vol trades, given environment of structurally higher political & economic risks and increasingly limited policy options Cheap equity upside in a bond / equity melt-up Risks of a hard Brexit rising and (weak) currency tailwind likely to prove short-lived; position cheaply for FTSE 100 (UKX) underperformance Using derivatives to capture Brazil (EWZ) upside potential following start of easing cycle Remain long equities and cheapen hedges by conditioning on rates China risk premium rising but A-shares vol still at all-time lows Equity-FX correlation is not priced for a spillover of populism into the EU, which could cause EUR (0 fall against an already weakened GBP as equities fall UKX is heavily exposed to EU (50% revenues) and should underperform SPX if GBP tailwind fades. Volatility & correlation suit well for outperformance Cheapen long XLF upside to near 8y lows via selling upside on structurally challenged European banks & relatively more bearish outlook for US rates vs EU Still depressed equity-bond correlation (US 5Y bonds vs. SPX in the 37th%-ile since Jun-88) cheapens the cost of SPX puts conditioned on higher rates Participate in the continuation of the reflation trade. Cheapen Financials upside by selling rich Utilities and Staples vol & expensive correl. Higher US rates and stronger dollar are likely to hurt companies exposed to EM and help US DM. Trade the outperformance in a risk-controlled way, avoiding selling the record-low correlation USDJPY and NKY the biggest beneficiaries of a Trump win Banks and Insurances are the most leveraged sector Banks and Insurances are the most leveraged sector China risk premium rising but A-shares vol still at all-time lows Own contrarian EM upside at low cost & limited risk QE uncertainty and USDJPY vol support NKY vs SPX realized vol What if QE hits its limit’? Long NKY vol outright which is cheap to carry With fiscal stimulus and potential tax cuts, small caps revert to old normal generating higher vol on upside and downside relative to large caps Vol and price technicals are attractive. BofAML commodity strategists oil target is $70/bbl but this is already priced in SXEP levels according to BofAML Oil & Gas equity analysts Position for a near-term wobble followed by yet another equity melt up Cheaply access positive carry QE failure hedge Position for a pick-up in single stock realised vol on the 10 names (within FTSE’s top 30) where post EU referendum realised vol was the highest relative to current 1y ATMf vol. The 10 names are: Barclays, Aviva, Prudential, BT, Glencore, Tesco, CRH, BA, Standard Chartered & HSBC. Hedge portfolios against a buy-the-dip failure should a faster rate cycle ultimately jeopardize it Sell rich Financials vol to fund cheap Tech upside Market may trade on the MSCI inclusion theme; Hedge with 2823 HK Jun17 95% put Market may trade on the MSCI inclusion theme; Hedge with 2823 HK Jun17 95% put Historically attractive to own TOPIX Top 10 corridor gamma weighted volatility dispersion Hedge a rollover in China GDP and screen for cyclicals that could face pressure Hedge a rollover in China GDP and screen for cyclicals that could face pressure Benefit from low vol, flat correl, likely hawkish ECB & (FX un-hedged)} inflows into EU equities Leverage cheap equity vs. FX vols to own cheap tail protection Buy cheap EM equity puts on near-record performance gap to commodities Monetise low vol & high implied correl to position for greater sector dispersion in EU: long basket call, short worst-of call Own cheap NKY hedges into FOMC; Term structure is too steep is under-pricing risks Buy unloved and cheap biotech upside by levering depressed vol & skew Bankof America Merrill Lynch Global Equity Volatility Insights | O06 June 2017 = 23 HOUSE_OVERSIGHT_023597