Volatility in Asia Own NKY calendar call going into the uncertainty Sep BO) Trade update: Closing the NKY Aug/Sep put calendar trade opened on 25-Jul The short NKY Aug16 15500 put vs. long NKY Sep16 15500-14500 put spread trade was opened on 25-Jul at 0.24% premium and was closed at 0.28% premium on 8-Aug as we are approaching the Aug16 expiry. In addition, the Sep-16 NKY put spread has already carried well by selling the inflated BO) risk premium even with the spot being largely unchanged. NKY & USDJPY 1Mth vols are down to YTD low: Pricing in a slow summer With the Japanese government announcing a ¥28.1tn fiscal stimulus package last week, the Abe administration has laid out both its new monetary and fiscal policies. In the short-term, there are few catalysts and both NKY and USDJPY 1Mth implied volatilities have retraced materially. VNKY is at 21.5 and USDJPY 1M ATM vol is at 9.8%, near their YTD low levels. USDJPY 2M-1M term structure at its steepest & NKY’s in its 98" %-ile since ‘11 FX has been the main driver in the current Macro world. Chart 29 shows that the USDJPY 2-month minus 1-month term structure is at its highs since 2011. The Sep BO) meeting is expected to be held on 21-Sep so USDJPY 1-month options do not cover the event. Notably, the NKY term structure is also very steep at 1.5%, which is in its 98" percentile since 2011. The NKY term structure was at its steep at 2.5% in Dec-13. Chart 28: Japanese equity volatility has dropped to YTD lows; USDJPY Chart 29: USDJPY 2M-1M ATM term structure (1.7%) is at its 5-year high short-dated vol also retraced to near YTD low levels while the NKY 2M-1M term structure (1.5%) is at its 98 percentile 55% 17% 2% PT a a aa ea aa 50% iets , 15% 1% tet i | 14% 40% \ | 13% 0% 9 : ; 12% 35% “ 1% 9 f pA 11% 30% +f . A yp. : 10% aE 25% 4 ' We ; 9% en _ 21.5% 3% a, = 2 2 e <2 = = 2 TTC NNNMMOMTT TOW wD © © c ro} — x > c — f=) ~~ YY YW YW YW WS YW YW WY YW SW SS YW Sw YW S BS 2 F 3 3 2 SESSESSSFSESSEHSE VNKY USDJPY 1M ATM vo