From: Daniel Sabba To: "jeffrey E." <jeevacation@gmail.com> CC: Paul Morris , Stewart Oldfield , Vahe Stepanian , "Arian Dwyer" Richard Kahn Subject: Idea for US equity hedging... [C] Date: Wed, 03 Jun 2015 13:42:47 +0000 Attachments: bianco's_piece.pdf In image003.jpg Classification: Confidential Jeffrey, We wanted to share this US equity hedging idea with you. We think it is relevant since US equity indices are near historic highs, implied volatility in US equities is close to historical lows and there is potential for Fed liftoff in September. David Bianco published the following on 5/22 (full report attached) about the possibility of a 5%+ pullback in the summer months: "We believe the probability of a 596+ dip is high this summer and our tactical call remains Down given the S&P now at an even higher PE than a year ago, heightened uncertainty in 10yr yields, weak earnings growth and continued soft economic data. We haven't had a 5%+ dip this year. Historically 596+ dips are common and happen at least once a year since 1960, except 1964, 1993 & 1995. It has been 916 trading days (3.6 years) since a 10% correction. Selloff triggers could be a further rise in 10yr yields especially if UE keeps falling amidst slow economic growth and Fed remains unclear on first hike timing, or a jump in the dollar upon the Fed expressing firm intentions to hike in Sept." With that said, we looked at OTC equity put spreads contingent on higher rates. We priced in-the-money versions which would obtain its maximum payout (over 5x premium) with a 5% sell-off in SPX and higher M0y US swap rates (CMS, 25bps over its forward level). Indicative transaction terms (as of 06/03/2015): Client buys: OTC SPX 105%/95% Put Spread contingent on l0y USD CMS > atmf+25bps at expiry Notional: USD50mm Expiry: 18 Dec 2015 Offer (mid): 2.00% (1.60%) Ref vanilla: 4.30% Ref SPX future: 2115 Ref l0y fwd: 2.54% SPX Implied volatility levels dose to historical lows EFTA01192950 GRAB n Actions • 90 TemplateF: 91) Hide - E2 Daily 02-Dec-2010 SPX Index IAMny IaLIVE SPX Index IV1ny kLIVE Spread(Absolute) Hi: 9S Table 02-Jun-2015 RSA Ma PI OD OD Low ln.F7 SPX Index SPX Index Spread(Absolute) 260 Volatility Compariso—n-7 LEL Iaot AMny LIVE • (1.) 6M 105% Mny 12.104 • (2.) 6t1 95% Mny 16.839 Spread(Abs) S Mny -4.735 Low: -I 2011 I 2012 I 2013 I 2014 i 2015 Australia 61 2 9777 8600 Brazil 5311 2396 9000 Europe 44 20 7330 7500 garoany 49 69 9204 1210 Hong Kong 852 2977 6n00 Japan 81 3 3201 8900 Slompant 65 6212 1000 U.S. 1 212 318 2000 Cepe-loht 2015 Blomberg Finance . SH 793879 6919-43617.4-'4un-15 10.11.26 EDT 68T-4.00 7" 35 •30 25 • 20 P-15 *10 • -4.00 Please let us know if you would like to discuss. Best regards, Daniel Daniel Sabba Key Client Partners Deutsche Bank Securities Inc. Email All trade execution information contained herein is being provided as an accommodation at your request in advance of your receipt of the official trade confirmation(s). Additional trade detail information available upon request. The terms of the trade(s) may be subject to change prior to settlement, and therefore the official trade confirmation(s) and account statements issued by Deutsche Bank shall govern. Deutsche Bank is not responsible for any discrepancy between the informal execution report and the official trade confirmation(s) or account statements. This communication may contain confidential and/or privileged information. If you are not the intended recipient (or have received this communication in error) please notify the sender immediately and destroy this communication. Any unauthorized copying, disclosure or distribution of the material in this communication is strictly forbidden. Deutsche Bank does not render legal or tax advice, and the information contained in this communication should not be regarded as such. EFTA01192951