EFTA01365009.pdf

3 December 2013 US Derivatives Spotlight Figure 19: Annualized returns/realized volatility for 36M Figure 20: Annualized returns/realized volatility for ISM calls and spreads rolled after 24M, Call spread notional calls and spreads rolled after 12M, Call spread notional scaled by delta scaled by delta 60% 1 70% 65% 66% 4 I 60% 9396 1 55% 45% 50 % a 40% a 35% 35 % II 30% 30% I - - .........._........ Outright: Spread: Spread. Outfight Spread: Outright: Spread: Spread: Outright Spread: ATM ATM -6% ATM-2% 10% 10% - 2% ATM ATM -3% ATM - 1% 5% 5% - 1% SOUK* dam?. Bank Sauce Dames Sane riOll pi !or 1re) expiry Figure 21 and Figure 22 show that rolling the call spread position before expiry would have generally (but not always) resulted in higher risk-adjusted returns, across many different strategies-. Rolling prior to expiry allows you to reduce the negative effects of time decay, since shorter-dated options lose their time value quickly. Rolling early also allows you to re-strike the calls, which is especially important for options that have become far out-of-the-money. Rolling will rebalance the delta exposure higher in these cases. However, note that rolling early will result in higher transactions cost. I Figure 21. Annualized returns/realized volatility for 36M spreads 100% • Spread: ATM - I M 2% • Spread: ATM - 6% Figure 22: Annualized returns/realized volatility for 18M spreads 120% - •Spread: ATM - IM 2% *Spread: 9%-3% 90% 80% Spread: 6%- 2% 100% Spread: 6% - 1% 70% 80% 60% 60% 60% 40% 30% 4096 I I 20% 10% 20% 0% 0 0 0 0% " CC • a CC • Cl CC a • CC a • CC ft, a, C CC F,, a CC 4,4 CC cc to cc ts , cc cc ti cc 34 cc a cc ‘3, 7‘1 cc cc ID N lc F, Source' Own** Sant Socese'oraelt• Sant Results for rolling prior to expiry hold for outright cass as Well Deutsche Bank Securities Inc. Page 11 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0055595 CONFIDENTIAL SDNY_GM_00201779 EFTA01365009