From: Ens, Amanda < Sent: Tuesday, November 15, 2016 2:44 PM To: jeffrey E.; Richard Kahn Subject: SPX put contingent on higher rates Navigating post-Trump volatility • We are recording unprecedented divergences in falling equity vol with rising rates vol post Trump's win. Intra-day S&P realized vol collapsed from near 60% to below 20% in 2d [Chart 1] • While equities have shown less conviction over what a Trump win means (given strong sector rotation}, the bond market has sold off with one of the largest moves in history [Chart 2 & 3] * Stabilizing rates volatility from here is key to markets remaining calm and while equity upside may continue, it is not without higher risks • We like cheap optionality to hedge long-equities if rates continue to move sharply For investors long equities, we look at ways to cheapen protecting from downside risks in the event of further bond market volatility catalysed by Trump policy uncertainty Buy an SPX Apr-17 95% put conditional on US 10Y CMS > 2.5% at maturity for 0.87% o 70% discount vs. vanilla o CMS ref. 2.11%, SPX ref. 2,164.2 CMS = constant maturity swap Chart 1: The response in S&P 500 realized equity volatility to the US election surprise was similar to Brexit but more extreme, as the spike in volatility collapsed at record speed Source: BofA Merrill Lynch Global Research. Based on daily data from June 2004 to current Chart 2: Ten-year US Treasury yields see a near record spike after the US election EFTA_R1_00106805 EFTA01785030