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Summary of Open Trades (19-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 9: Summary of open trades as of 19-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 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 Open Date 5 5 5 1 1 1 1 2 -Jul-16 -Jul-16 -Jul-16 8-Jul-16 7-Oct-16 7-Oct-16 4-Nov-16 -Nov-16 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 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 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 Dect? 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 Long 1x EEM 3m 97.5% put vs. short ~0.09x units each of 3m 97.5% puts on FXI, EWY, EWZ, EPI, EWT, RSX, EZA, and EWW Buy Tencent Jult? 250/300 strangle Buy A-shares (2823 HK) Jul17 105% call Buy 1x contract of ESTX50 Jun17 3525, sell 4x contracts of V2X Aug future Buy SX5E Dec17 3450-3700 bullish risk reversal vs short IBOXX HY TRS with equal notional sizing Ro 21 0 0 0 0 0 0 0 5 9 2 2 2 2 2 2 8 8 1 1 1 1 1 2 2 2 3 -Dec-16 Dec-16 2-Dec-16 2-Dec-16 2-Dec-16 2-Dec-16 2-Dec-16 2-Dec-16 2-Dec-16 -Dec-16 -Jan-17 3-Jan-17 3-Feb-17 7-Feb-17 4-Mar-17 4-Mar-17 3-Mar-17 3-Mar-17 0-Apr-17 4-Apr-17 4-Apr-17 -May-17 -May-17 5-May- 5-May- 5-May- 6-May- 5% 2-May-17 2-May-17 2-May-17 0-May-17 Open Level 6.1 vols 5.7 vols 0.00% 0.9% 2.0% 2.6% 2.1% 5.55% 1.63% 2.05% 1.20% 1.83% 3.30% 3.20% 5.90% 1.20% 1.50% 21.5% 3.9pts 00% % 4.00% 7.0% 32.3vols % A4% A4% 5.8% 0.77% 0.10% 3% 0.3% 6% 6% 0.0% 5% 0.0% 2.45% 15% 00% AT% Expected Trade Term Dec-18 expiry > 3m Jun- Jun- Sep- year 7 expiry 7 expiry 7 expiry -17 expiry Dec- vun- Jun- vun- Jun- vun- Jun- vun- 7 expiry -17 expiry 7 expiry 7 expiry 7 expiry 7 expiry 7 expiry 7 expiry Dec-19 expiry 7 expiry Dec- Jun- van- Sep- vun- 8 expiry 7 expiry Jul-17 expiry Dec-18 expiry 8 expiry 4-Mar-18 7, expiry 7 expiry vun- 7 expiry Mar18 expiry Jul17 expiry Jult7 expiry Dec? expiry Jult7 expiry Aug17, expiry Dect? expiry Jult7 expiry Sep-17 expiry Jul-17 expiry Jul-17 expiry Jun-17 expiry Dec-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 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 © fall against an already weakened GBP as equities fall UKX is heavily exposed to EU (50% revenues) and should underperform SPX if GBP tailwind ‘ades. 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 USDJPY and NKY the biggest beneficiaries of a Trump win Banks and Insurance are the most leveraged sector Banks and Insurance 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 he 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 inexpensive equity vs. FX vols to own cheap tail protection Buy inexpensive 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 inexpensive NKY hedges into FOMC; Term structure is too steep is under-pricing risks Buy out-of-favour and inexpensive biotech upside by levering depressed vol & skew Market may trade on Buy EEM puts financed by a basket of EM puts to lever near record low correl Hedge a potential China tech bubble; Tencent potentially volatile after a 45% rally YTD Hedge the upside into MSCI announcement on 20-Jun Fundamental case to be long EU equities remains intact but stretched bullish positioning could lead to near-term consolidation BofAML Equity & Credit strategists highlight they favour equities over HY credit as div yields have surpassed HY credit yield & equities offer more gearing to rising PMI's, earnings and FCF Bankof America Merrill Lynch Global Equity Volatility Insights | 20 June 2017 21 HOUSE_OVERSIGHT_014992