Chart 24: The V2X Aug17/Sep17/Oct17 futures fly reached 3.7v on 31- Chart 25: The V2X Sep17-Oct17 spread is actually significantly lower May. This is higher than equivalent flies at the same number of days than the equivalent UK referendum and French election spreads, before both the UK referendum and recently concluded French elections suggesting the majority of excess volatility is being priced in SX5E === |talian/German election (Aug/Sep/Oct) fly Sep/Octfwdvol Italian referendum (Oct16/Nov16/Dec16) fly 8 == Italian/German election (Sep-Oct) spread 16 —— UK referendum (May16/Jun16/Jul16) fly Italian referendum (Nov16-Dec16) spread 14 -——French election (Mar/Apr/May) fly —— UK referendum (Jun16-Jul16) spread 12 6 French election (Apr-May) spread 10 8 4 6 4 2 2 mR 0 = 0 ff -2 120 110 100 90 80 70 60 50 40 30 20 10 0 -2 Trading days to event 120 110 100 90 80 70 60 50 40 30 20 10 0O Source: BofA Merrill Lynch Global Research. Data: 8-Jan-16 to 5-Jun-17. Trading days to event Source: BofA Merrill Lynch Global Research. Data: 8-Jan-16 to 5-Jun-17. Chart 26: The current price of the V2X Aug/Sep/Oct fly would have overestimated the value of a 1d/26d/46d fly (i.e., equivalent to the Aug/Sep/Oct fly 1d before the Aug expiry) 94% of the time since Jun-09 3 PIRTeIE cio (2013) The current price of the V2X Aug/Sep/Oct fly would have UK referendum (~4 vols) overestimated the value of a 1d/26d/46d fly {i.e., equivalent 4 | tenor to the Aug/Sep/Oct fly 1d before the Aug expiry) 94% of 2 ite cH the time since Jun-09. This suggests it has ample room to trade . Al APA allt al Mad ah! | LU | lower should political uncertainty abate by Aug. However, if r instead implied risk becomes more concentrated in the 20-Sep 2 to 20-Oct period ahead of the Aug expiry (due to, say, political -4 developments in Italy or Germany increasing risk perception), 6 the fly would stand to gain considerably. -8 ‘09 10 14 12 13 14 15 16 ——Price of 1d / 26d / 46d fly* (equiv. of Aug/Sep/Oct fly 1d before Aug