EFTA01365004.pdf

3 December 2013 US Derivatives Spotlight US interest rates have been depressed by the iterations of QE programs and dividend payments have been increasing in the post financial crisis recovery. The low level of rates (see Figure 6) and relatively high implied dividend yields (see Figure 7) have resulted in negative carry costs and have reduced the SPX forward (the spot value 'grown' by the carrying costs, see Figure 8). Please note that the effect of the forward on the call premia is 'optics' - dividends will reduce the price of the underlying (and call options as well if actual dividends are higher than priced into options). However, as shown in Figure 2. rates rising from these low levels and/or dividend yields falling will result in a mark-to-market gain on the long call position, all else equal. Figure 6: Low rates... Figure 7: ...and relatively high SPX implied dividend 6% 3.0% 2.8% • 5% 2.6% 4% 2.4% 3% 2.2% 2.0% 2% 19% —36M US Swap Rate 1% —60M US Swap Rate 1.6% 0% r -- r-- r— 1.4% Jan-03 Jan415 Jan-07 Jan-09 Jan-11 Jan-13 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Swap' Oeurren• Sent Ikramberg Amara LP tan Ow:WmMr* 'Figure 8' .. .have depressed SPX forward levels 120% 36M SPX Forward/Spot 115% —60M SPX Forward/Spot 110% 105% 100% 95%4 90% Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 son twat. &int Anecdotally, a less material impact on SPX call premia is due to repo rates which decreased significantly at the beginning of 2013 and have rebased to a much lower range since then. The lower repo level and elevated repo volatility are factors that have pushed call prices slightly higher from where they would otherwise be. Deutsche Bank Securities Inc. Page 5 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0055589 CONFIDENTIAL SDNY_GM_00201773 EFTA01365004