EFTA01783057.pdf

From: Richard Kahn Sent: Wednesday, September 14, 2016 4:30 PM To: jeffrey E. Subject: Fwd: AAPL - now a good opportunity to overwrite Richard Kahn HBRK Associates Inc. 575 Lexington =venue 4th Floor New York, NY 10022 tel fax cel Begin forwarded message: From: =/b>"Ens, Amanda" Subject: =/b>AAPL - now a good =pportunity to overwrite Date: =/b>September 14, 2016 at 10:53:56 =M EDT To: qb Rich, AAPL October vols are up by about 5 =ol points from mid-August. Our trader now recommends call overwrites =selling vol). We aren't set up yet to sell options for our =ccount here but I'm happy to help if you'd like to discuss ideas. Regards, Amanda From: Ens, Amanda Sent: Tuesday, August 16, 2016 1:27 PM To: 'Richard Kahn' Subject: AAPL — Implied vols at extreme low ="evels. Replace long AAPL positions with cheap call options EFTA_R1_00103371 EFTA01783057  Rich, I'm not sure =f you own AAPL but in case you do, I wanted to share our recommendation =o replace long AAPL positions with =heap call options to lock-in profits from the recent 14% rally after Q3 =arnings. AAPL implied vol at extreme low levels => buy upside =alls. A two year look back for 2-month ATM implied vol is in =he 1st percentile. The company is supposed =o announce details for the iPhone 7 around Sept 7th, prior to October option expiration and we believe implied volatility is =oo low. After the last 5 earnings reports (excluding the earnings event =ove), AAPL has realized 19%, 21.5%, 27.5%, 32.5% and 19.75% - we =hus see limited downside to being long October vol at - 18.8%. Stock replacement: Buy =ct 21st expiry AAPL 115 calls @ 1.60 (1.4% =remium) o or buy the Oct 21st expiry AAPL 110 calls @ 3.55 (3.2% premium) If you would like to have exposure through Oct =4th earnings and the elections, we could look at =ovember but the vol is about 2.5 vol points higher. Buy Nov 18th expiry AAPL 115 calls @ 2.65 (2.3% =remium) o or buy the Nov 18th expiry AAPL 110 calls @ 4.70 (4.3% premium) Why replace stock with call =ptions? Post AAPL =arnings on Jul 26th, nearer-dated (1month to 3 =onth) implied volatility declined sharply. 2 month ATM options are =asically at 5 year lows. It's not to be ignored the =ompany holds a sizeable cash position on the balance sheet which can have a volatility =ampening effect on the shares. However, there may still be a key =atalyst - the company is supposed to announce details for their next =eneration iPhone prior to October expiration and we believe implied volatility is too low. Based on last year's timing, =pple is expected to host an event this year around September 7th to announce their new phone. The phone would typically come =vailable for purchase a week or so later. 2 EFTA_R1_00103372 EFTA01783058  According to our =esearch analyst, through our own analysis and conversations with the =uyside: Positive catalysts needed are: 1. Better features than expected (unlikely) 2. Pricing of iPhone 3. Announcement of a much improved watch =possible) 4. New macs (not a needle mover) Negative catalysts could be: 1. Sell on the news on iPhone 7 =nnouncement 2. Early order sell out trends, if weak, can be =egative ahead of Oct expiry I should also note that cash repatriation policy =ight change after the elections; a repatriation tax reduction could =mpact AAPL's return of capital to shareholders significantly =$153bn cash, 80% outside the US, cash is 28% of AAPL's market cap as of 1Q16). We can discuss our research on this further if =ou're interested. Vol =urface AAPL —=Two year look-back for = month ATM implied and 2 month implied - realized spread, all screen very cheap 1st =ercentile and 19th percentiles respectively (see =etails and charts below). Seems the options market is pricing the =ext product release announcement Phone 7, etc.) as not much of a catalyst at all. The current low level of implied volatility has =een carrying well with realized volatility higher than implieds on 30-, =0- and 100-day basis. We expect implied vols to find a =loor, and realized volatility continue to support this over the coming several weeks as we approach the new product release. =his options backdrop provides an opportunity if you are looking for =ays to add leverage or reduce risk into the event (stock replacement =ith call options.) 2 year look back of 2 month atm =mplied vol (absolute) — 1st percentile low Source: Bloomberg 2 year =ook back 2 month implied — 40 day realized spread =9th percentile cheap Source: Bloomberg 3 EFTA_R1_00103373 EFTA01783059  Regards, Amanda Amanda Ens Director Bank of America Merrill =ynch Merrill Lynch, =ierce, Fenner & Smith Incorporated One Bryant Park, 5th Floor, New York, NY 10036 Phone The power of global connections'" This message, and any attachments, is for the intended =ecipient(s) only, may contain information that is privileged, =onfidential and/or proprietary and subject to important terms and =onditions available at http://www.bankofamerica.com/emaildisclaimer. If you =re not the intended recipient, please delete this message. 4 EFTA_R1_00103374 EFTA01783060