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Global Equity Volatility Insights Bankof America Why S&P vol dispersion may be the best Merrill Lynch way to trade a bubble in Tech 06 June 2017 US Equity Derivatives Global How to detect and position for a potential Tech Bubble Our investment strategists recently warned against the risk of an overshoot in US Tech, as data on valuations, relative performance, and inflows invoke echoes of the late ‘90s. However, rising Tech vol alongside rising Tech stock prices — a classic sign of an asset bubble — has yet to materialize, suggesting still early stages of bubble formation. Derivatives can be a key tool for trading bubbles, allowing investors to capture asset price upside while mitigating reversal risk. To this end, we like stock replacing FANG positions or overlaying Tech exposure with Nasdaq 100 (NDX) put spreads. Long volatility dispersion strategies are particularly well-suited for trading asset bubbles, in our view, as they can profit from oth the inflation and deflation of a bubble without needing to time the top. Specifically, we like SPX 12M Top50 dispersion to position for a potential Tech Bubble as (i) the Top50 basket is dominated by Tech stocks, hence Global Equity Derivatives Rsch would benefit from any rise in their vol from currently low levels; (ii) the trade would aes benefit from any downward pressure on broad-market correlations as Tech stocks BofA Analytics = DATA DRIVEN = Nitin Saksena Equity-Linked Analys decouple from other large caps; and (iii) the late ‘90s Tech Bubble generated the most MLPF&S sustained period of elevated S&P vol dispersion in history. Stefano Pascale Equity-Linked Analys MLPF&S Europe Benjamin Bowler DTE Sep17 collars can hedge DTE-TMUS merger risk; value in Enel bullish riskies igen DTE GY has run too fast, too quick: investors who own stock should consider hedging a benjamin.bowler@baml.com pullback using a Sep17 collar (+17put/-18 call for 46bps) to hedge losses greater than William Chan, CFA >> 2.9% while retaining upside to 18 (stock’s ~15yr high is 18.05). Extending our EU equity Pec en es eee ae vs credit theme to single names, we find Enel 3m bullish risk reversals screen attractive Michael Youngworth as Enel’s projected 12m div yield is high versus Enel CDS (suggesting value in owning aes Analys equity vs credit) and the price of 3M bullish risk reversals is low (versus other names) as well as versus history (2™ 5y percentile). Glevis Sous non Equity-Linked Analys MLI (UK) . eel As la et ty-Linked Analys Buy best-of puts to cheaply hedge a reversal in the melt-up rally MLI (UK) While still high central bank liquidity may continue to push markets higher, heavy equity Abhinandan Deb >> . tees . or Equity-Linked Analys and option positioning suggests the risk of a market reversal. To minimize the cost of MLI (UK) hedges and take advantage of the recent decline in volatility and correlation, we suggest Nikolay Angeloff owning 14-Sep-2017 95% strike best-of puts on KOSPI2/HSI/NKY at 0.8%, a 45% a! Analys discount to average vanilla puts. See Team Page for List of Analysts Table 1: 3M volatility (weekly changes) Unauthorized redistribution of this report is prohibited. This report is intended for amanda.ens@baml.com Implied Realized S&P500 9.5 (-0.1) 7.3 (-04) ESTX50 13.0 (-0.4) 11.1 (-0.6} FTSE 10.6 (0.4) 9.2 (-0.5) DAX 12.2 (-0.7) 9.9 (-0.7) NKY 14.2 (-0.2) 12.5 (0.1) HSI 124 (0.3) 10.1 (-0.2) a . . i KOSPI 12.8 (-0.3) 10.6 (0.0) >> Employed by a non-US affiliate of MLPF&S and is not registered/qualified as a research analyst under EEMUS 15.4(-0.1) 13.2 (08) the FINRA rules. TOP4O 15.1(1.0) — 109(0) Refer to "Other Important Disclosures" for information on certain BofA Merrill Lynch entities that take iy ne responsibility for this report in particular jurisdictions. RDX 24.7 (1.2) 21.3 (0.0) BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a IBOV 253 (0.5) 26.4(-0.2) result, investors should be aware that the firm may have a conflict of interest that could affect the ISE30 19.6 (-0.2) 14.0 (-0.4) objectivity of this report. Investors should consider this report as only a single factor in making Source: BofA Merrill Lynch Global Research their investment decision. Refer to important disclosures on page 32 to 36. Analyst Certification on page 29. Price Objective Basis/Risk on page 29. 11753360 Timestamp: 06 June 2017 01:43AM EDT HOUSE_OVERSIGHT_023575