From: Daniel Sabba To: "jeffrey E." <jeevacation®gmail.com> CC: Paul Morris , Stewart Oldfield Ste anian , "Arian Dwyer" Subject: Using Russell puts as a proxy to short HY market. [C] Date: Thu, 25 Jun 2015 14:52:15 +0000 Inline-Images: image017.png; image001.png; image002.png , Vahe , Richard Kahn Classification: Confidential Jeffrey, I called you yesterday and left a message with M. A few large investors have gone on the record over the past days calling for frothiness in the High Yield market. The rationale typically used is the richness of the asset class and recent proliferation of covenant-lite deals. We have been working on using Russell (and IWM US ETFs) puts to hedge for a HY sell-off and would like to discuss with you. Russell risk premium can be seen as tied to HY and put options are historically cheap (see below). WM 95% put premia in historical lows (see premiums for 1m, 3m and 6m expiries). We looked at data over the last 10 ears and found the 3m 95% • uts to be around the 3rd historical rcentile. IWM 95% Put Premia as a % of Spot 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 28-it n-OS 28-Jun-06 28-Jun-07 28-Jun-08 28-Jun-09 28-Jun-10 28-Jun-11 28-Jun-12 28-Jun-13 28-Jun-14 —lm —3m —6m Historical rolling 3-month performance of HYG US ETF and RTY Index. The historical performance below illustrates that when large moves happened, they co-occurred in both RTY Index and HYG US ETF (since 2007). EFTA01198260 RTY and HYG Rolling 3 Month Performance 40.00% 30.00% 20.00% 10.00% 0.00% -10.00% - -20.00% -30.00% 40.00% 9/25/2007 9/25/2008 9/25/2009 9/25/2010 9/25/2011 9/25/2012 9/25/2013 9/25/2014 -HYG (LHS) -RTY (RHS) 60.00% 40.00% Russell vol In historical lows and historically cheap to S&P (in relative absolute terms for 95% strike 3m vols) SPX and RTY 3-Month 95% Strike Implied Volatility and Spread 25-Jun•07 25•Jun-08 25•Jun-09 25•Jun•10 25•Jun•11 2S-Jun•12 25-Jun-13 25-Jun•14 — .SPX 3M-Maturity 95%-Strike Implied Volatility —.RUT 3M-Maturity 95%-Strike Implied Volatility —Spread Looking forward to discussing further. Regards, Daniel Daniel Sabba Key Client Partners Deutsche Bank Securities Inc. Tel. +1 Mobile Email EFTA01198261 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. EFTA01198262