Summary of Open Trades (19-Jun-17)
Price data for open level reflects the price on open date and does not necessarily reflect the price at which the trade could be executed at the date of this report. Our trades are structured to be executed on the open date and are not necessarily appropriate to
execute as formulated beyond that date.
Table 9: Summary of open trades as of 19-Jun-17
Trade Description
Long SX5E vs short SPX Dec18 var swap
Long NKY vs short SPX Dec18 var swap
Long SX5E vs short SPX Dec18 put vs put
Buy a 1Y ATM worst-of call on SPX & TLT
Buy SPX>UKX Jun17 ATM outperformance call, conditioned on SPX lower at maturity (q{USD)
Buy UKX Jun17 6650 put, sell SPX Jun17 1850 put
Buy an SX5E Sep-17 95% put conditional on EUR 10Y CMS > 1.1% or < 0.3% in Mar-17
Buy 2823 HK Jun-17 90/110 strangle
Buy ESTX50 Dect? 90% put contingent on EURGBP < 0.82 by Jun? expiry
Buy SPX>UKX Jun17 5% outperformance call (qUSD)
Long XLF vs SX7E Juni? ATM outperf call, contingent on SX7E higher at Jun expiry (qEUR)
Buy NKY Jun17 110% Call
Buy TPINSU Jun17 110-125% Call Spread
Buy TPNBNK Jun17 110-125% Call Spread
Buy 2823 HK Junt7 90/1 10% strangle
Buy HSCEI Jun17 105-120% call spread contingent on $KRW >1200
Buy NKY-SPX Dec19 70/110% corridor variance
Buy NKY Jun17-Jun18 18,500 strike FVA
Long Russell 2000 vs. short S&P 500 Dec-18 var spread
Buy 1x Jun? 64 call on Aug17 Brent futures, sell 1x SXEP Jun17 330 call
Buy SPX 6m ATM call contingent on GLD 5% higher in 3m Long NKY - SPX Dec-18 corridor var replication Buy NDX Top20 volatility dispersion
Long 1.8x vega on 1y single stock vols of UK Brexit exposed names, Short 1x vega on 1y FTSE index vol
SPX Sep-17 95% puts conditional on the Syr CMS rate above 2.4% at maturity
Buy Buy-Rated MSCI A-shares stocks & hedge with puts
Buy A-shares with highest MSCI impact & hedge with put
Own Japan stock vol via gamma weighted vol dispersion
Buy CNOOC Jul-17 95% puts vs. sell HSCEI 95% puts
Buy CH Merchant Bk Jul-17 18.5/17 put spread vs 22 call
Buy SX5E Dec17 3800 calls contingent on EURUSD > 1.1 at expiry Buy 1.5x KOSPI2 285 puts vs. short 1x $KRW 1160 call
Buy EEM Aug17 39.5 put and sell EEM Aug17 37 put
Buy Dec17 105% call on an equally weighted basket of SX7E, SXAP, SXPP & SXEP, sell Dec17 ATM worst-of call on the same
Buy NKY Jul-17 19500 puts vs. short Dec-17 17500 puts
Short GILD $55-$62.5-$67.5 put spread collar
Long 1x EEM 3m 97.5% put vs. short ~0.09x units each of 3m 97.5% puts on FXI, EWY, EWZ, EPI, EWT, RSX, EZA, and EWW
Buy Tencent Jul1? 250/300 strangle Buy A-shares (2823 HK) Jul17 105% call
Buy 1x contract of ESTX50 Jun17 3525, sell 4x contracts of V2X Aug future
Buy SX5E Dec17 3450-3700 bullish risk reversal vs short IBOXX HY TRS with equal notional sizing
Open Date 5-Jul-16 5-Jul-16 5-Jul-16 18-Jul-16 17-Oct-16
17-Oct-16 14-Nov-16 21-Nov-16
2-Dec-16
ie}
-Dec-16
2-Dec-16
02-Dec-16 02-Dec-16 02-Dec-16 02-Dec-16 02-Dec-16 02-Dec-16 02-Dec-16
5-Dec-16
9-Jan-17
23-Jan-17 3-Feb-17 27-Feb-17
4-Mar-17
4-Mar-17 23-Mar-17 23-Mar-17 0-Apr-17 24-Apr-17 24-Apr-17 8-May-17 8-May-17 15-May- 15-May- 15-May- 16-May- 1.5%
22-May-17 22-May-17
22-May-17
30-May-17
Open Level 6.1 vols 5.7 vols 0.00% 0.9% 2.0%
2.6% 2.1% 5.55%
1.63% 2.05%
1.20%
1.83% 3.30% 3.20% 5.90% 1.20% 1.50% 21.5%
3.9pts
00%
% 4.00% 7.0%
32.3vols
%
44% 44% 5.8% 0.77% 0.10% 3% 0.3% 6%
6%
0.0% 5% 0.0% 2.45% 15%
00%
A1%
Expected Trade Term
Dec-18 expiry
year
Jun-17 expiry
Jun-
>
7 expiry Sep-17 expiry
-17 expiry
Dec-17 expiry
-17 expiry
Jun-17 expiry
Jun-17 expiry 7 expiry 7 expiry 7 expiry 7 expiry Dec-19 expiry 7 expiry
vun- vun- vun- vun-
vun-
Dec-18 expiry
Jun-17 expiry
Jul-17 expiry Dec-18 expiry
Jan-18 expiry
4-Mar-18
Sep-17, expiry
Jun-17 expiry 7 expiry Mar18 expiry Jul17 expiry Jult7 expiry Dec? expiry Jult7 expiry
Aug17, expiry
vun-
Dec? expiry Jult7 expiry Sep-17 expiry 3m
Jul-17 expiry Jul-17 expiry
Jun-17 expiry
Dec-17 expiry
Rationale
Investors should re-assess attractiveness of popular and {typically} technically motivated longer- dated RV vol trades, given environment of structurally higher political & economic risks and increasingly limited policy options
Cheap equity upside in a bond / equity melt-up
Risks of a hard Brexit rising and (weak) currency tailwind likely to prove short-lived; position cheaply for FTSE 100 (UKX) underperformance
Remain long equities and cheapen hedges by conditioning on rates
China risk premium rising but A-shares vol still at all-time lows Equity-FX correlation is not priced for a spillover of populism into the EU, which could cause EUR 0 fall against an already weakened GBP as equities fall
UKX is heavily exposed to EU (50% revenues) and should underperform SPX if GBP tailwind ades. Volatility & correlation suit well for outperformance
Cheapen long XLF upside to near 8y lows via selling upside on structurally challenged European banks & relatively more bearish outlook for US rates vs EU
USDJPY and NKY the biggest beneficiaries of a Trump win
Banks and Insurance are the most leveraged sector
Banks and Insurance are the most leveraged sector
China risk premium rising but A-shares vol still at all-time lows
Own contrarian EM upside at low cost & limited risk
QE uncertainty and USDJPY vol support NKY vs SPX realized vol
What if QE hits its limit? Long NKY vol outright which is cheap to carry
With fiscal stimulus and potential tax cuts, small caps revert to old normal generating higher vol on upside and downside relative to large caps
Vol and price technicals are attractive. BofAML commodity strategists oil target is $70/bbl but this is already priced in SXEP levels according to BofAML Oil & Gas equity analysts
Position for a near-term wobble followed by yet another equity melt up
Cheaply access positive carry QE failure hedge
Position for a pick-up in single stock realised vol on the 10 names (within FTSE’s top 30} where post EU referendum realised vol was the highest relative to current 1y ATMf vol. The 10 names are: Barclays, Aviva, Prudential, BT, Glencore, Tesco, CRH, BA, Standard Chartered & HSBC.
Hedge portfolios against a buy-the-dip failure should a faster rate cycle ultimately jeopardize it
he MSCI inclusion theme; Hedge with 2823 HK Jun17 95% put
Market may trade on the MSCI inclusion theme; Hedge with 2823 HK Jun17 95% put Historically attractive to own TOPIX Top 10 corridor gamma weighted volatility dispersion Hedge a rollover in China GDP and screen for cyclicals that could face pressure
Hedge a rollover in China GDP and screen for cyclicals that could face pressure
Benefit from low vol, flat correl, likely hawkish ECB & (FX un-hedged) inflows into EU equities Leverage inexpensive equity vs. FX vols to own cheap tail protection
Buy inexpensive EM equity puts on near-record performance gap to commodities
Monetise low vol & high implied correl to position for greater sector dispersion in EU: long basket call, short worst-of call
Own inexpensive NKY hedges into FOMC; Term structure is too steep is under-pricing risks Buy out-of-favour and inexpensive biotech upside by levering depressed vol & skew
Market may trade on
Buy EEM puts financed by a basket of EM puts to lever near record low correl
Hedge a potential China tech bubble; Tencent potentially volatile after a 45% rally YTD
Hedge the upside into MSCI announcement on 20-Jun
Fundamental case to be long EU equities remains intact but stretched bullish positioning could lead to near-term consolidation BofAML Equity & Credit strategists highlight they favour equities over HY credit as div yields have surpassed HY credit yield & equities o
er more gearing to rising PMI's, earnings and FCF
Bankof America Merrill Lynch
Global Equity Volatility Insights | 20 June 2017 21
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