EFTA01387458.pdf

Cc: Paul Morris; Vahe Stepanian; Richard Kahn Subject: short crude vol strategy - follow-up analysis Classification: Public Jeffrey — this is the analysis we put together and alluded to in the meeting today. It evaluates the performance of the short crude vol strategy since Jan 131n, when we traded. As discussed, sharp moves up in oil (WTI is up 6% intraday today) are also negative to a short straddle strategy that is delta hedged daily, as it causes realized vol to increase, potentially beyond expectations. If one expects this environment of high realized vol to be short lived, the trade continues to make sense. If one expects it to be a continued paradigm, it might make sense to revisit holding this strategy. Trade date: 13 -]an Valuation date for all the numbers below: 2-Feb We have rounded various numbers for ease. Index return since trade date: -4.7% The index has lost money basically because realized vol has been much higher than implied. Some stats on this are below. Strike Implied- Current Contract Vol strike i Date Realized vol Realized Implied CLHS 60% 13-Jan-15 67% -7% 81% CLJS 43% 13-Jan-15 65% -22% 50% CLKS 42% 14-Jan-15 61% -20% 48% This loss has occurred over a period of 13 Index Business Days. Looking back since index inception date, I tried to see how many times such a loss would have occurred over a period of 13 days. This 13 Index Business Day performance represents the 6° percentile. Here is a graph showing performances over a 13 day period: 73d Return 15% 10% 5% 0% -10% -15%--' Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15 Also useful, below chart shows implied vol atm mid for the 2nd month futures over the last ly: CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0090135 CONFIDENTIAL SDNY_GM_00236319 EFTA01387458