Chart 17: SXEP calls would have generated a higher average payoff and more frequent positive returns vs. USO calls (when sized for an upfront cost equal to the current price of the USO 3M 25d put)
Avg Payoff Freq of >0 2.1x SXEP 3M 25d calls: 2.9% 27% 1.3x USO 3M 25d calls: 1.4% 10%
60%
50% 40% 30% 20% 10%
0% 08 09 ‘10 M412 13 141516 SXEP Call Payoff = USO Call Payoff
Source: BofA Merrill Lynch Global Research. Data from 1-Jan-16 to 5-Aug-1 6. Backtesting is hypothetical in nature and reflects application of the screen prior to its introduction. It is not intended to be indicative of future performance.
Chart 19: Number of bonds purchased by the ECB in their CSPP programme by sector
Chart 18: Selling the USO 25d put (~8.7 strike as of 5-Aug) to buy the SXEP 42d call (~280 strike as of 5-Aug) for ~0 provides early upside participation and a ~12% downside buffer on the short USO put leg
300 290 280 270 260 290 240
13 Long SXEP call strike (unlevered implementation) 12
Short USO put strike|_ 9
230 220 7 oo oOo O OO 0 0 0O© 0 © © OO © © © © BEESSEEEEEEESS35 SXEP ——US0 (rhs)
Source: BofA Merrill Lynch Global Research. Data from 1-Jan-16 to 5-Aug-16. Backtesting is hypothetical in nature and reflects application of the screen prior to its introduction. It is not intended to be indicative of future performance.
Chart 20: Oil drawdowns have recently coincided with $ weakening
25% 15%
440 mw # Bonds Purchased 55% 135 m% of Eligible _. z ° 400 ni 45% - “ | Mb 35% 60 1 0 ! H
Source: BofA Merrill Lynch Global Research.
Negative correlation would have helped dampen potential USD losses on the short USO put leg
70%
50% 30% 10%
10% 1 i I -30% “ener ‘o7 = '08 09 10 11 12— 13 14 15 16 USO vs. EURUSD correlation* Conditional on USO down Source: BofA Merrill Lynch Global Research. Data from 18-Apr-07 to 5-Aug-16.
Bankof America Merrill Lynch
Global Equity Volatility Insights |O9 August 2016 =-11
HOUSE_OVERSIGHT_025988