EFTA01789461.pdf

From: Daniel Sabba Sent: Wednesday, June 3, 2015 6:55 PM To: jeffrey E. Subject: RE: Idea for US equity hedging... [CJ Did you have a chance to think about the Credit Suisse note we sent over? Original Message From: jeffrey E. [[email protected] <mailto:[email protected]> J Sent: Wednesday, June 03, 2015 10:02 AM Eastern Standard Time To: Daniel Sabba Subject: Re: Idea for US equity hedging... (C) too complex for me On Wed, Jun 3, 2015 at 9:42 AM, Daniel Sabba > wrote: Classification: Confidential Jeffrey, We wanted to share this US equity hedging idea with you. We think it is relevant since US equity indices are near historic highs, implied volatility in US equities is close to historical lows and there is potential for Fed liftoff in September. David Bianco published the following on 5/22 (full report attached) about the possibility of a 5%+ pullback in the summer months: "We believe the probability of a 5%+ dip is high this summer and our tactical call remains Down given the S&P now at an even higher PE than a year ago, heightened uncertainty in 10yr yields, weak earnings growth and continued soft economic data. We haven't had a 5%+ dip this year. Historically 5%+ dips are common and happen at least once a year since 1960, except 1964, 1993 & 1995. It has been 916 trading days (3.6 years) since a 10% correction. Selloff triggers could be a further rise in 10yr yields especially if UE keeps falling amidst slow economic growth and Fed remains unclear on first hike timing, or a jump in the dollar upon the Fed expressing firm intentions to hike in Sept." EFTA_R1_00115910 EFTA01789461  With that said, we looked at OTC equity put spreads contingent on higher rates. We priced in-the-money versions which would obtain its maximum payout (over 5x premium) with a 5% sell-off in SPX and higher 10y US swap rates (CMS, 25bps over its forward level). Indicative transaction terms (as of 06/03/2015): Client buys: OTC SPX 10S%/95% Put Spread contingent on l0y USD CMS > atmf+25bps at expiry Notional: USD50mm Expiry: 18 Dec 2015 Offer (mid): 2.00% (1.60%) Ref vanilla: 4.30% Ref SPX future: 2115 Ref l0y fwd: 2.54% SPX Implied volatility levels close to historical lows Please let us know if you would like to discuss. Best regards, Daniel Daniel Sabba Key Client Partners Deutsche Bank Securities Inc. 2 EFTA_R1_00115911 EFTA01789462  All trade execution information contained herein is being provided as an accommodation at your request in advance of your receipt of the official trade confirmation(s). Additional trade detail information available upon request. The terms of the trade(s) may be subject to change prior to settlement, and therefore the official trade confirmation(s) and account statements issued by Deutsche Bank shall govern. Deutsche Bank is not responsible for any discrepancy between the informal execution report and the official trade confirmation(s) or account statements. This communication may contain confidential and/or privileged information. If you are not the intended recipient (or have received this communication in error► please notify the sender immediately and destroy this communication. Any unauthorized copying, disclosure or distribution of the material in this communication is strictly forbidden. Deutsche Bank does not render legal or tax advice, and the information contained in this communication should not be regarded as such. please note The information contained in this communication is confidential, may be attorney-client privileged, may constitute inside information, and is intended only for the use of the addressee. It is the property of JEE Unauthorized use, disclosure or copying of this communication or any part thereof is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by return e-mail or by e-mail to [email protected] <mailto:[email protected]> , and destroy this communication and all copies thereof, including all attachments. copyright -all rights reserved This communication may contain confidential and/or privileged information. If you are not the intended recipient (or have received this communication in error) please notify the sender immediately and destroy this communication. Any unauthorized copying, disclosure or distribution of the material in this communication is strictly forbidden. Deutsche Bank does not render legal or tax advice, and the information contained in this communication should not be regarded as such. 3 EFTA21_00115912 EFTA01789463