Chart 13: The 2016 election move implied by the VIX term structure is, in our estimate*, approx. 1.4%... ---0--- Interpolated Oct future (level where Sep/Oct/Nov Fly = 0) Using the VIX term structure in the Sep/Oct/Nov buckets and —e— Expected Oct future based on median level of ~1M/2M/3M fly Ticti ; VIX futures (adjusted for holidays) adjusting for term structure/day convention (see footnote to 18.1 Chart 13), we estimate the option markets’ implied move over a ue single day in the Oct-Nov period (which encompasses the US ITA election on 8-Nov). 17.4 LA 169 Excess vol vs we Our estimated implied move is 1.4% which is notably very close 16.6 median levels ger to the typical 1-day post-election day SPX realized move over Ry gor" ~~. past election cycles (1.5% since 1928) (see Chart 14). 15.9 ger" Implied daily move on election ; ; oo, 156 ig day = 1.4% vs. a typical realized Importantly, there is a larger-than-typical variation in the 15.4 "election day" move of 1.5% (see distribution of all daily post-election SPX returns (34.0 vol pts We Chart 14) vs. 18.4 vol pts for daily SPX returns since Jan-1928), with the 146 largest and the fourth largest daily post-election SPX returns Sep16 Oct16 Nov16 since 1928 occurring in the last two election cycles alone (see Source: BofA Merrill Lynch Global Research. Daily data from 2-Jun-09 to 5-Aug-16. *Day count Chart 1 4). adjustment = we adjust the VIX futures curve to reflect the Trade-Day/252 day-count convention and use SORT ((30/365*252/T}) as the adjustment factor to convert to the common day-count convention used in variance swaps. Term-structure adjustment = we add the median level of the day- count adjusted generic 1m/2m/3m fly (ie. -0.5x Sep fut. +1xOct fut. -0.5x Nov fut) to take into account the usual VIX term structure. Chart 14: which is notably very close to the typical SPX daily realized Hence, investors who believe this is not your typical election (to move ost-elections since 1928 quote President Obama at the