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Chart 24: The V2X Aug17/Sep17/Oct17 futures fly reached 3.7v on 31- May. This is higher than equivalent flies at the same number of days before both the UK referendum and recently concluded French elections === |talian/German election (Aug/Sep/Oct) fly Italian referendum (Oct16/Nov16/Dec16) fly 16 7 —_UK referendum (May16/Jun16/Jul16) fly French election (Mar/Apr/May) fly 120 110 100 90 80 70 60 50 40 30 20 10 O Trading days to event Source: BofA Merrill Lynch Global Research. Data: 8-Jan-16 to 5-Jun-17. Chart 26: The current price of the V2X Aug/Sep/Oct fly would have overestimated the value of a 1d/26d/46d fly (i.e., equivalent to the Aug/Sep/Oct fly 1d before the Aug expiry) 94% of the time since Jun-09 French elections (~13 vols) ——-~ UK referendum (~4 vols) ——» | 1_| PTA Aaa oo BM ON Kk @ ‘09 10 ‘11 12 13 14 15 16 Price of 1d / 26d / 46d fly* (equiv. of Aug/Sep/Oct fly 1d before Aug expiry) === Current price of Aug/Sep/Oct fly Source: BofA Merrill Lynch Global Research. Data: 2-Jun-16 to 1-Jun-17. *Using constant maturity futures. Chart 25: The V2X Sep17-Oct17 spread is actually significantly lower than the equivalent UK referendum and French election spreads, suggesting the majority of excess volatility is being priced in SX5E Sep/Oct fwd vol 8 == Italian/German election (Sep-Oct) spread Italian referendum (Nov16-Dec16) spread —— UK referendum (Jun16-Jul16) spread French election (Apr-May) spread 120 110 100 90 80 70 60 50 40 30 20 10 0 Trading days to event Source: BofA Merrill Lynch Global Research. Data: 8-Jan-16 to 5-Jun-17. The current price of the V2X Aug/Sep/Oct fly would have overestimated the value of a 1d/26d/46d fly (i.e., equivalent tenor to the Aug/Sep/Oct fly 1d before the Aug expiry) 94% of the time since Jun-09. This suggests it has ample room to trade lower should political uncertainty abate by Aug. However, if instead implied risk becomes more concentrated in the 20-Sep to 20-Oct period ahead of the Aug expiry (due to, say, political developments in Italy or Germany increasing risk perception), the fly would stand to gain considerably. Bankof America Merrill Lynch Global Equity Volatility Insights | O06 June 2017 13 HOUSE_OVERSIGHT_023587