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Chart 15: Buying an XLF 1m ATM call financed by selling a QQQ 1m call is still an attractive way for investors to rotate out of Growth and into Value 1.3 1.1 0.9 0.7 0.5 2012 2013 2014 2015 2016 2017 ——# of 1m XLF calls one 1m QQQ call buys Current (99th %-ile) == Average Source: BofA Merrill Lynch Global Research. Data from 9-Jun-12 to 16-Jun-17. Last week, we highlighted that investors who want to rotate out of Growth strategies into Value strategies should take advantage of elevated tech vol by buying XLF 1m ATM calls financed by selling QQQ 1m ATM calls. After last week’s FOMC meeting, the case for such a trade grows even stronger as the market thinks the Fed has become more hawkish, driving up real rates and the USD. Amid this backdrop, one could see outperformance of Value names over Growth names, which tend to have higher amounts of offshore revenues that would come under pressure by a stronger dollar. Additionally, the trade remains attractive at current levels as pricing has only been better 1% of the time in 5 years. Today, 1.03 XLF calls could be bought for each QQQ call sold, whereas over the past 5 years, the average number of XLF calls that could be purchased was only 0.80. Table 2: Current S&P500 volatility and correlation measures relative to the prior two year of historical daily data 1-week change Over 2-year historical period 46Jun17 9Jun17 Change aun Minimum 25% Median 75% © Maximum 1-month ATM implied volatility 16% 19% -0.3% 1.3% 71% 9.8% 11.7% 14.5% 31.8% 1-year ATM implied volatility 14.0% 14.0% 0.0% 17% 13.4% 15.3% 16.2% 17.3% 22.5% 1-week intraday realized volatility 18% 713% 0.5% 19.6% 5.2% 8.3% 10.6% 14.0% 53.7% 1-year minus 1-month term structure 6.5% 6.1% 04% 99.2% -12.0% 2.1% 44% 5.4% 10% 3-month 90 minus 110 skew 8.5% 8.3% 0.2% 16.1% 711% 9.4% 11.3% 11.8% 13.8% 1-year top 50 implied correlation 45 44 45.10 0.35 8.1% 42.03 49.37 54.22 57.14 65.55 3-month top 50 realized correlation 21.30 24.08 218 16.8% 12.57 27.15 37.28 48.45 60.41 VIX 1-month ATMf implied vol 81.9% 80.0% 1.9% 39.9% 61.2% 18.2% 85.0% 95.2% 162.2% VIX 1-month 110 minus 90 skew 27.1% 26.9% 0.2% 88.6% 9.3% 18.6% 21.5% 23.8% 30.3% Source: BofA Merrill Lynch Global Research deg oct Bankof America 8 Global Equity Volatility Insights | 20 June 2017 Merrill Lynch HOUSE_OVERSIGHT_014979