HOUSE_OVERSIGHT_023580.jpg
2.04 MB
Extraction Summary
0
People
4
Organizations
0
Locations
1
Events
0
Relationships
2
Quotes
Document Information
Type:
Financial research report / market analysis
File Size:
2.04 MB
Summary
This is page 6 of a 'Global Equity Volatility Insights' report produced by Bank of America Merrill Lynch, dated June 6, 2017. The document analyzes a significant market drop in the Nasdaq 100 (NDX) that occurred on May 17, 2017, and discusses hedging strategies for 'FANG' stocks (Facebook, Amazon, Netflix, Google) and the Nasdaq. While the content is purely financial analysis, the Bates stamp 'HOUSE_OVERSIGHT_023580' indicates this document was collected as evidence by the House Oversight Committee, likely as part of a subpoena of financial records related to Jeffrey Epstein's banking relationships.
Organizations (4)
| Name | Type | Context |
|---|---|---|
| Bank of America Merrill Lynch |
Author of the Global Equity Volatility Insights report
|
|
| House Oversight Committee |
Recipient of the document via discovery (Bates stamp HOUSE_OVERSIGHT_023580)
|
|
| Nasdaq |
Referenced as NDX in market analysis
|
|
| S&P |
Referenced for volatility comparison
|
Timeline (1 events)
2017-05-17
A -2.5% drop in the NDX (Nasdaq 100), described as a six standard deviation (6σ) event.
Financial Markets
Full Extracted Text
Complete text extracted from the document (2,187 characters)
Chart 13: The -2.5% drop in the NDX on 17-May was a six standard deviation (6σ) event relative to trailing realized volatility and the fourth worst risk-adjusted daily return since 1985
[Graph showing Daily NDX return / trailing (EWMA) vol and 17-May-17 marker]
Source: BofA Merrill Lynch Global Research. Daily data from 4-Feb-85 through 2-Jun-17. EWMA = exponentially-weighted moving average realized volatility with lambda = 0.94.
[Graph showing Daily NDX return / trailing (EWMA) vol and 17-May-17 marker]
Source: BofA Merrill Lynch Global Research. Daily data from 4-Feb-85 through 2-Jun-17. EWMA = exponentially-weighted moving average realized volatility with lambda = 0.94.
Chart 14: The 6σ sell-off in the NDX on 17-May has helped drive short-dated Tech implied vol higher relative to S&P vol, although the absolute level of Tech vol still remains historically low
[Graph showing NDX 3M ATM implied vol and NDX - SPX 3M ATM implied vol spread (right)]
NDX vol = 2nd %-ile
NDX-SPX vol spread = 94th %-ile
Source: BofA Merrill Lynch Global Research. Daily data from 1-Jun-09 through 2-Jun-17.
[Graph showing NDX 3M ATM implied vol and NDX - SPX 3M ATM implied vol spread (right)]
NDX vol = 2nd %-ile
NDX-SPX vol spread = 94th %-ile
Source: BofA Merrill Lynch Global Research. Daily data from 1-Jun-09 through 2-Jun-17.
Hedge near-term reversal risk via FANG stock replacement or NDX put spreads
As we have previously noted, asset bubbles can be notoriously difficult to trade, as fundamentals give way to chasing higher highs, and derivatives can be a key tool for capturing asset price upside while mitigating reversal risk.
As we have previously noted, asset bubbles can be notoriously difficult to trade, as fundamentals give way to chasing higher highs, and derivatives can be a key tool for capturing asset price upside while mitigating reversal risk.
Chart 15: Proxy hedge screen for a Nasdaq 100 (NDX) benchmark suggests NDX is the best hedge for itself, as basis risk runs too high with other assets
1 Nov08 (-39%)
2 Mar08 (-18%)
3 Mar09 (-15%)
4 Aug11 (-14%)
5 Feb16 (-13%)
6 Jul06 (-13%)
7 Jul10 (-12%)
8 Aug15 (-10%)
9 Nov12 (-10%)
10 May12 (-9%)
1 Nov08 (-39%)
2 Mar08 (-18%)
3 Mar09 (-15%)
4 Aug11 (-14%)
5 Feb16 (-13%)
6 Jul06 (-13%)
7 Jul10 (-12%)
8 Aug15 (-10%)
9 Nov12 (-10%)
10 May12 (-9%)
[Chart listing assets:]
S&P500, ESTX50, NIKKEI, HYG, RTY, FTSE, TWSE, HSI, NIFTY, HSCEI, KOSPI, Aluminum, EEM US, TLT*, ASX200, RDXUSD, AUDUSD, GLD*, CADUSD, NZDUSD, Copper, EURUSD, USDJPY, BOVESPA, TOP40, Crude Oil, GBPUSD
Estimated hedge benefit per unit cost vs. NDX
Average
Source: BofA Merrill Lynch Global Research. Data as of 2-Jun-17. *Call option volatility used.
S&P500, ESTX50, NIKKEI, HYG, RTY, FTSE, TWSE, HSI, NIFTY, HSCEI, KOSPI, Aluminum, EEM US, TLT*, ASX200, RDXUSD, AUDUSD, GLD*, CADUSD, NZDUSD, Copper, EURUSD, USDJPY, BOVESPA, TOP40, Crude Oil, GBPUSD
Estimated hedge benefit per unit cost vs. NDX
Average
Source: BofA Merrill Lynch Global Research. Data as of 2-Jun-17. *Call option volatility used.
We continue to like hedging the risk of a US Tech overshoot via stock replacement strategies, for example, stock replacing long "FANG" positions with either cheap calls on the individual FANG stocks or with outperformance calls on FANG vs. S&P.
6 Global Equity Volatility Insights | 06 June 2017
Bank of America Merrill Lynch
HOUSE_OVERSIGHT_023580
Bank of America Merrill Lynch
HOUSE_OVERSIGHT_023580
Discussion 0
No comments yet
Be the first to share your thoughts on this epstein document