HOUSE_OVERSIGHT_023589.jpg

Chart 29: DTE GY 3.5month +40delta put /-38 delta call collars Chart 30: DTE collars enable stock owners to protect against losses (equivalent to Sep17 +17 put /-18 call) are cheap relative to history >2.9% while retaining upside to the stock’s ~15yr high (€18.05) ; === Option trade (long Sep 17 put / short Sep 18 call) — DIE GY 3.5m 40d put - 38d call price (%) 9 DTE GY stock + option trade en 20% DTE GY stock 9 aa 15% 4% 410% Current stock price: €17.42 3% The option price has been cheaper Bo 5% 400 79 only 14% of the time since Jun-08 o ee ° 0% — = fe} EE =e "% -5% + -2.9% i ie om 6 om AO = wim wot tb wo © wo 10% + -8.2% 15-year high in the stock price: €18.05 Oo Oi ems, & “se ® Se Se, mm “a “Ee “a Se, Sa © ny Ce) for) =o 9 £& 8 £ 8 & 8 & 8 &£ 8 & 8 & G& £& GB ~~ x _ = So B90 5S 909 BO SBS 7TH 5BA SB 97T 5090 3 D fee ee ah ee ee ne ee Oe ee Oe a | Deutsche Tel stock price on September expiry day Source: BofA Merrill Lynch Global Research. Daily data from 2-Jun-08 to 5-Jun-17. Source: BofA Merril Lynch Global Research. Data as of 5Jun-17 Enel stock attractive vs credit given cheap bullish risky & high div yield vs CDS On 31-May-17, we recommended buying SX5E bullish risk reversals and selling IBOXX HY TRS as a low carry / low risk trade with gearing to improving earnings and FCF. We now look for similar opportunities at the single name level. Among the 50 companies which have high projected 12m dividend yield relative to bond yields (as highlighted by BofAML credit and equity strategists — Chart 9), we highlight a subset (15 names) where we have option data since at least Jun-12 (last 5yrs). The names in the bottom-right corner of Chart 31 indicate the cheapest 3m -25d put/+25delta call risk-reversals where projected dividend yield is highest relative to the CDS spread. We note that: « Royal Dutch Shell’s stock yield is attractive vs CDS: Shell’s projected 12m div yield is 7.5% while its CDS is 52bps (0.5%), resulting in a div yield-CDS spread of 7.0%, the highest in our screen; this suggests value in Shell equity vs credit. ¢ Cheap bullish risk reversals in Enel and Iberdrola: 3m -25delta put/+25delta call risk reversals in Enel and Iberdrola are the lowest across the 15 names in Chart 31. Notably, bullish risk reversals in Enel are also particularly cheap versus history as the price of 3m -95%f / +105%f bullish risk reversals is below its 5" 5-y %-ile. Bankof America Merrill Lynch Global Equity Volatility Insights | O06 June 2017 15 HOUSE_OVERSIGHT_023589