EFTA Document EFTA01435326

Subject: Fw: short crude vol strate y - follow-up analysis [I] From: Paul Morris Date: Thu, 05 Feb 2015 15:46:04 -0500 To: Stewart Oldfield ‹ > Classification: For Internal Use Only From: Daniel Sabba Sent: Thursday, February 05, 2015 01:30 PM To: jeffrey E. <[email protected]> Cc: Paul Morris; Vahe Stepanian; Richard Kahn ‹ > Subject: RE: short crude vol strategy - follow-up analysis Classification: Public Jeffrey, Per my previous email, WTI moved down over 8% on Wednesday and up 7% on Tuesday. As discussed at our meeting, this level of high realized volatility is very negative to a short straddle with daily delta hedging strategy. We refreshed the analysis below to include the Tuesday's and Wednesday's moves. We would like to point out this trade has moved over 10% down, and ask you on whether you continue to want to hold it. Trade date: 13-Jan Valuation date for all the numbers below: 4-Feb We have rounded various numbers for ease. Index return since trade date: -10.84% The index has lost money basically because realized vol has been much higher than implied, and also implied has gone up a lot (however, we wouldn't pay a lot of attention to the implied going up a lot; since finally what will count as more days pass is what realized is doing). Some stats on this are below. EFTA01435326 fcid:[email protected] This loss has occurred over a period of 15 Index Business Days. Looking back since index inception date, we tried to see how many times such a loss would have occurred over a period of 15 days. This 15 Index Business Day performance represents the 0.6th percentile. Daniel Sabba Key Client Partners Deutsche Bank Securities Inc. Tel. Mobile Email From: Daniel Sabba Sent: Tuesday, February 03, 2015 3:19 PM To: 'jeffrey E.' 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 13th, 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-Jan Valuation date for all the numbers below: 2-Feb EFTA01435327 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. {cid:[email protected]} 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 6th percentile. Here is a graph showing performances over a 13 day period: {cid:[email protected]} Also useful, below chart shows implied vol atm mid for the 2nd month futures over the last ly: {cid:[email protected]} And below is the same chart over the last 10 years: {cid:[email protected]} EFTA01435328