From: "Ens, Amanda" To: "Jeffrey E." <[email protected]>, Richard Kahn Subject: Buy hedges for May expiry Date: Thu, 16 Mar 2017 18:27:30 +0000 Attachments: Woo_ 13-Feb-2017.pdf; Woo_-_Year_Ahead_-_16-Nov-2016.pdf Inline-Images: image001.jpg David Woo (BAML head of FX, Rates and EM Strategy, very highly regarded across our client base) is back from meetings in DC with senior policymakers. Bottom line: sees market pullback over the next 6-8 weeks on near term policy disappointment and recommends buying protection such as S&P puts — very cheap and market is priced for perfection right now. May 15th expiry 100%/90% SPX put spread costs 1.7% (6:1 gross max payout) David Woo takeaways • #1 focus these days is tax reform - if they don't get it done by Jan 2018, it won't happen at all, and then Republicans would be out of a job when midterm elections come • ACA has to be completed first — and it was a mistake to tackle this before tax reform. Obamacare difficult with only 52 seats in the Senate but Ryan has gone too far to back away from ACA and refocus on tax reform as a priority. McConnell's ACA target is mid-April and then they can start to focus on tax reform 2H April at the earliest. • Position for a market pullback over the next 6-8 weeks on bad headlines, data rollover (consumer confidence) as market focuses on ACA, low approval ratings and lack of progress with tax reform — vol and SPX puts are cheap — buy early- or mid-May expiries • Still long term bullish • 95% tax reform still happens this year (2H17 or Jan 2018) because Republicans know it has to happen this year or they are sitting ducks in 2018 and potentially unelectable for 6 years • Predicts no progress on tax reform over the next 6 weeks and then Republicans rally together to get behind a new plan and get it done (enter Woo's VAT proposal) — with market messy in the meantime • Trump is obsessed with the stock market — when he sees it trade lower, he will act • Regardi