From: Richard Kahn

From: Richard Kahn To: Jeffrey Epstein <jeevacation®gmail.com> Subject: Fwd: Using Russell puts as a proxy to short HY market. [CI Date: Wed, 02 Sep 2015 10:17:54 +0000 !Mine-Images: image003.jpg; image004.png; image005.png; image006.png One good trade idea over two years so Daniel feels the need to resend Sent from my iPhone Begin forwarded message: From: Daniel Sabba Date: September I, 2015 at 7:53:30 PM EDT To: "'Jeffrey E.'" <eevacationc2) mail.com> Cc: Paul Morris Dwyer" Subject: RE: Using Ru , Stewart Oldfield , Vahe Stepanian "Arian "'Richard Kahn" ell puts as a proxy to short HY market. IC] Classification: Confidential Trying to keep it honest, we looked into PnL of this idea today. It wasn't bad. The idea was to use 3-month, 95% Russell 2000 index (RTY) puts to hedge a High Yield (HY) selloff. On 6/25, with RTY at —1283 — clients could have purchased Sept 1220 puts @ - 520/contract. Given market volatility last week, clients could have unwound the trade at - 5120/contract Russell 2000 Index Sept 1220 Put — Historical chart Jan Mae np Hay )in Jul Z0IS From: Daniel Sabba Sent Thursday, June 25, 2015 10:52 AM To: Jeffrey E. Cc Paul Morris; Stewart Oldfiekl; Vahe Stepanian; Mane Dwyer; Richard Kahn Subject Using Russell puts as a proxy to short MV market. [C] Classification: Confidential Jeffrey. I called you yesterday and left a message with M. EFTA01185917 A few large investors have gone on the record over the past days calling for frothiness in the High Yield market. The rationale typically used is the richness of the asset class and recent proliferation of covenant-lite deals. We have been working on using Russell (and IWM US ETFs) puts to hedge for a HY sell-off and would like to discuss with you. Russell risk premium can be seen as tied to HY and put options are historically cheap (see below). WM 95% put premia in historical lows (see premiums for im 3m and 6m expiries). We looked at data over the last 10 years and found the 3m 95% puts to be around the 3rd historicalpercentile. IWM 95% Put Premla as a % of Spot 16.0% 14.0% . 12.0% 10.0% 8.0% 6.0% 4.0% 0.0% 28-Jun-OS 28-Jun-06 28-Jun-07 28-Jun-08 28-Jun-09 28 Jun-10 28-Jun-11 28-Jun-12 28-Jun-13 28-Jun-14 —lm 3m —6m 1A _ Historical rolling 3-month performance of HYG US ETF and RTY Index, The historical performance below illustrates that when large moves happened, they co-occurred in both RTY Index and HYG US EYE (since 2007). 40.00% 30.00% 20.00% 10.00% 0.00% -10.00% -20.00% -30.00% -40.00% RTY and HYG Rolling 3 Month Performance 60.00% - 40.00% - 20.00% 0.00% - -20.00% - -40.00% -60.00% 9/25/2007 9/25/2008 9/25/2009 9/25/2010 9/25/2011 9/25/2012 9/25/2013 9/25/2014 ItHS) —RTY (MIS) Russell vol in historical lows and historically cheap to S&P (in relative absolute terms for 95% strike 3m vols) EFTA01185918 SPX and RTY 3-Month 95% Strike Implied Volatility and Spread 80 0 70 • 60 50 40 30 20 10 0 25-Jun-07 25-Jun-08 25-Jun-09 2S-Jun-10 25-Jun-11 25-Jun-12 25-Jun-13 25-Jun-14 —.SPX 3M-Maturity 95%-Strike Implied Volatility —.RUT 3M-Maturity 95%-Strike implied Volatility —Spread -10 -12 Looking forward to discussing further. Regards, Daniel Daniel Sabba Key Client Partners Deutsche Bank Securities Inc. Tel. +1 212 454 0857 Mobile +1 917 374 4185 Email 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. EFTA01185919