From: "Ens, Amanda" ale To: "jeffmy E." <[email protected]>, Richard Kahn S> Cc: "Rothbcrg, Justin D" Subject: Stock replace tech positions or overlay with Nasdaq put spreads Date: Fri, 09 Jun 2017 19:55:05 +0000 Attachments: GEVI_-_SPX_vol_dispersion_to_trade_a_bubble_in_tech.pdf Wine-Images: image002.jpg; imagc003.jpg; image004.jpg; image005.jpg; image006.jpg; imagc007.jpg; image008.jpg Would you like to revisit stock replacing AAPL with call options or hedging your tech longs with Nasdaq put spreads? As discussed earlier this week: How to detect and position for a potential Tech Bubble • Valuations, relative performance, and inflows data invoke echoes of the late '90s and suggest risk of an overshoot in (IS Tech (Chart 1 to 4) • However, lack of rising vol alongside stock prices - a classic sign of an asset bubble — signals still early stages of bubble formation (Chart 5-6) • Derivatives can be a key tool for trading bubbles, allowing investors to capture asset price upside while mitigating reversal risk • To this end, we like stock replacing FANG positions or overlaying Tech mg:inure with Nasdaq 100 lNINQ put spreads The last Instance where a single sector dominated SPX market cap as the Tech sector does now was the dotcom bubble era cyidiriutter.01.jpg'40102DESA.23537FTO Source: Bot*A Mani] l.)ach Globs! Research. ',tont)* data (mm Jan. MO to.lun.17 In May, the Nasdaq recorded its longest streak of monthly gains since 2009 (TA. However. compared to the only other instances of longer streaks ('86.95) the current bull run is still only half the size i;yitl:image001.jpsgOID2DESA2F537FRi Source: Soft. Mcmll l.)nch Global Research. Data from Sep-85 to 31-M:9, . 7 During the 2000s Tech Bubble, Tech vol rose with Tech stocks and broader market correlations fell as Tech stocks decoupled from other large caps-both classic signs of an asset bubble Growth has only been relatively more expensive vs. Value during the peak of the dotcom bubble Leid:image002.jpg®01D2DE5A.2F537FF0 &max: Bd.& Merrill Lynch Global Rcsearvh. Daily dam from 30-km.15 to 5.-lun-l' Tech valuations seem to be gaining momentum and are now at their highest levels since before the GFC but remain far from dotcom bubble peaks li&id:image012jpg®DID2DESA.2F537FF0 Sourec: Rot\ Merrill Lynch Global Research. %loath!), data imm lan-8b to May-17 Histogicaly, ki major asset bubbles. realized volatility has tended to rise meaningfully not only after the bubble deflates, but also In the run-up to the market peak EFTA01043738 gyid:imageO2LjpgSOID2DESA2FS37FTO d:image022.jpgeOlD2DE5A.2F537FF0 Source: Boa Merrill Lynch Global Research. Daily dam from 1..tan-95 through 3I.Doc-01. SPX SOUK!: RofA Merrill Lynch Global Research correbricm - assuage poinstse realize:Icorrelation of all 30) stocks Average SPX TopS0 single stock fa ATOM implied vol is depressed vs. history. In part driven by Tech market cap dominating the Index and Tech vol the 2nd lowest across sectors on a historical basis ;)itlimige021.jpga 0 I D2DE5A.215)7I10 Source: BetA Menill Lynch Global Research. Daily data from 5Juit.I4 to 5.1un.I7 This message. and any attachments, is for the intended recipient(s) only, may contain information that is privileged, confidential and/or proprietary and subject to important terms and conditions available at http://www.bankofamerica.comiemaildisclaimer. If you are not the intended recipient, please delete this message. EFTA01043739