Summary of Open Trades (5-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 6: Summary of open trades as of 5-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 EWZ Jun-17 40 call conditional on SPX<2200 at expiry
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 Jun17 expiry 2-Dec-16
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 SPX Jun17 95% put contingent on US 5Y CMS > 2.15
Buy 1x Jun-17 ATM XLF call, sell 1.8x Jun-17 ATM worst-of calls on XLP and XLU
Buy Jun-17 ATM R2kK- value outperf call over EEM, contingent on EEM > 95%
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 Jun17 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 QQQ Jun17 132 call , sell XLF Jun17 25 call
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
Open Date
5-Jul-16 5-Jul-16 5-Jul-16 18-Jul- 17-Oct-
17-Oct-16 24-Oct-16
14-Nov-16
21-Nov-16
2-Dec-16
2-Dec-16
5-Dec-16
5-Dec-16
5-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 13-Feb-17 27-Feb-17
14-Mar-17
14-Mar-
20-Mar- 23-Mar- 23-Mar- 10-Apr-17 24-Apr-17 24-Apr-17 8-May-17
8-May-17
15-May-17 15-May-17
15-May-17 16-May-17
AAS
Open Level 6.1 vols 5.7 vols 0.00% 0.9% 2.0%
2.6% 1.7%
2.1% 5.55%
1.63% 2.05% 1.20% 1.04%
2.10%
2.30%
1.83% 3.30% 3.20% 5.90% 1.20% 1.50% 21.5%
3.9pts
00%
4.00% 1.0%
32.3vols
0.57% 44% 44% 5.8% 0.77% 0.10% 3% 0.3% 6%
6%
0.0% 3%
Expected Trade Term
Dec-18 expiry
year Jun-17 expiry
Jun-17 expiry Jun-17 expiry Sep-17 expiry Jun-17 expiry
Dec-17 expiry -17 expiry -17 expiry -17 expiry
-17 expiry
-17 expiry
-17 expiry -17 expiry -17 expiry -17 expiry -17 expiry -19 expiry -17 expiry
-18 expiry
-17 expiry
Jul-17 expiry Dec-18 expiry 8 expiry
van-
4-Mar-18
Sep-17, expiry Jun-17 expiry Jun-17 expiry Jun-17 expiry Mar18 expiry Jul? expiry Jul? expiry Dec? expiry Jul? expiry Aug17, expiry
Dec? expiry
Jul? expiry Sep-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
Using derivatives to capture Brazil (EWZ) upside potential following start of easing cycle 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 fades. 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
Still depressed equity-bond correlation (US 5Y bonds vs. SPX in the 37th%-ile since Jun-88) cheapens the cost of SPX puts conditioned on higher rates
Participate in the continuation of the reflation trade. Cheapen Financials upside by selling rich Utilities and Staples vol & expensive correl.
Higher US rates and stronger dollar are likely to hurt companies exposed to EM and help US DM. Trade the outperformance in a risk-controlled way, avoiding
selling the record-low correlation
USDJPY and NKY the biggest beneficiaries of a Trump win
Banks and Insurances are the most leveraged sector
Banks and Insurances 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
Sell rich Financials vol to fund cheap Tech upside
Market may trade on the 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 cheap equity vs. FX vols to own cheap tail protection
Buy cheap 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 cheap NKY hedges into FOMC; Term structure is too steep is under-pricing risks
Buy unloved and cheap biotech upside by levering depressed vol & skew
Bankof America Merrill Lynch
Global Equity Volatility Insights | O06 June 2017 = 23
HOUSE_OVERSIGHT_023597