Market Volatility Bulletin

Transcription

1 ( Skew Ratio Percentile (Last 5 Years) Weekly Market Commentary March 10, 2014 Market Volatility Bulletin Hedging Demand Increases on Rising Cross-Asset Contagion Equity Derivatives Strategy Weekly IMPLIED VOLS were mixed across asset classes last week with vols rising earlier in the week on geopolitical tensions and coming in subsequently on better than expected economic data. Gold, interest rates, and FX (G7) implied vols fell week over week, with FX (G7) 1M implied declining to the 2 nd percentile low over past year. Both JPY and GBP 1M implieds are at 1- year lows. In contrast, equity and oil vols increased wk/wk. The VIX was up marginally by 0.1 pt to 14.1% while oil 1M implied gained 1.7 vol pts to 18.6%. EQUITY VOL DRIVERS = geopolitical risks, econ data; S&P 1M implied volatility was up marginally by 0.1 vol pt last week to 11.3% and is currently trading at a 1.8 pt premium to 1M closeto-close realized volatility (-3.4 pts wk/wk). Our regime switching model suggests that the principal macro factors driving short dated implied volatility are higher geopolitical risks counterbalanced by better US economic data. Last week, we highlighted the cheapness of SX5E vols in the face of rising geopolitical tensions. Since then, SX5E implieds have risen significantly, with term structure now inverted in the front-end. The spread between 1M SX5E-SPX vol has more than doubled to 6.3% and now screens rich relative to history. VOL-OF-VOL declines: S&P implied volatility-of-volatility, as measured by 1M VIX implied vol, came in by 6.8 pts wk/wk to 60.8% (42 nd percentile). Realized vol-of-vol, as measured by VIX log returns, fell to 99.2% (-18.3 pts wk/wk; 46 th percentile). Meanwhile, VIX 1M skew (25-delta spread) made new 1-year lows as we continue to see robust call demand. Put SKEW steepens to 84 th percentile high: With US equity markets making new all-time highs, option market sentiment remains cautious. Two indicators we track S&P skew and the CS Fear Barometer are both signaling increased hedging demand. For example, S&P 1M put-side skew (25D/50D ratio) has steepened to the 84 th percentile high (see Exhibit 2). See our recommended hedge idea on pg 27. Exhibit 1: VIX vs. Asset Levels: VIX Unch d, Rates & Gold Higher VIX Oil Gold Corp Credit CDS FX (USD) 10Y Tsy Yld Sovereign CDS Source: Credit Suisse Derivatives Strategy Exhibit 2: SPX 1M Put-Side Skew at 84 th Percentile High SPX 1M Put Skew (25D/50D Ratio) Source: Credit Suisse Derivatives Strategy Exhibit 3: Volatility Contagion Btw EUR vs. SPX Surges to 1Y High TERM STRUCTURE unchanged: Implied volatilities remained relatively stable across the term structure last week, increasing marginally for short-dated maturities. Implied CORRELATION gains on macro risk: S&P 1M implied (top 50) correlation remained stable at 44.1% last week while realizing 32.3% (-7.4 pts wk/wk). Notably, volatility contagion between Euro and SPX surged to a 1-year high of 7 last week (see Exhibit 3) on Russia/Ukraine concerns. Edward K. Tom ed.tom@credit-suisse.com (212) * primary author (212 Stanislas Bourgois Stanislas.bourgois@credit-suisse.com Source: Credit Suisse Derivatives Strategy Terry Wilson terry.wilson@credit-suisse.com (212) Mandy Xu * mandy.xu@credit-suisse.com (212)

2 Percentile (Last Year) Europe and Asia IMPLIED VOLS were mixed last week with FX implied volatilities down across the board, while Oil implied volatility and the VSTOXX index were up on increased geopolitical concerns, and despite a reasonably small move on the SX5E index (down 1.7% week-on-week). Near, the VSTOXX index continues to be the most expensive implied volatility compared to recent levels (75 th percentile, versus 30 th for AUDJPY or the rates volatility index CIRVE, see Exhibit 4). VSTOXX vs VIX: Comparatively the VIX is roughly unchanged on the week near 14.1%, as the S&P s performance last week (up 1%) caused the VIX to go lower despite vol marks to the upside. Ukraine has become the driver behind European implied volatilities, as shown by the also elevated level of DAX implied volatilities. However, although the VSTOXX/VIX spread reaches over 6 points, V2X and VIX futures only price in a 3 to points spread across maturities (see Exhibit 5), not a particularly attractive level on backtest, and given the risk of going short VSTOXX in an escalating Ukraine situation. SKEW was mixed; while implied volatility skew rebounded on the SX5E, it remained stable on the S&P and fell on Nikkei though still near elevated levels. Implied vol-of-vol, as proxied by the VIX and VXTOXX implied volatilities, reflect this divergence, as the VIX implied volatility fell by 6.8pts to 61% week-on-week, while it continued to rise on the VSTOXX towards the low 90s. Similarly increased risk perceptions caused the volatility term structure to flatten on the SX5E, while it steepened on the S&P. FUTURES ROLL: we are entering the futures roll season. With many of the indices covered in this report trading near all-time highs, and given generally positive correlation between futures open interest and index levels, we expect that overall real money investors are predominantly long futures again. We see one exception to our general long view, FTSE where last roll was driven by shorts again and as was the case during the whole of year 2013, and DAX where open interest has recently been driven by shorts and the Ukraine situation. We would recommend that longs roll early, in particular if the roll is already fair or cheap to them (notably SX5E, DAX, FTSE, SX7E, S&P, Nasdaq or Nikkei, see Exhibit 6). We would also recommend that short FTSE investors roll early while the roll is still fair to them (see link: Mar14 Global Futures Roll). Exhibit 4: V2X vs Other Asset Implied Volatilities V2X Oil Gold Corp Credit CDS AUDJPY CIRVE Index Source: Credit Suisse Derivatives Strategy Exhibit 5: V2X VIX Futures Spread Per Maturity* Mar Apr May June July Aug Sep Oct Source: Credit Suisse Derivatives Strategy, Bloomberg V2X - VIX Futures Spot Exhibit 6: Roll Cost To The Long (bps) Name Current Roll (ips) Roll Fair Value (ips) To the Long DJ Eurostoxx Fair DAX Fair FTSE Fair AEX Expensive CAC Fair IBEX Fair FTSE MIB Expensive OMX Cheap SMI Cheap Eurostoxx Banks Cheap S&P500 e-mini Fair Nasdaq e-mini Fair Russell 2000 e-mini Fair Dow Jones Industrial Fair S&P 400 Midcap e-mini Cheap Mexbol Expensive Nikkei Fair Kospi Expensive Topix Fair Source: Credit Suisse Derivatives Strategy Fair defined as less than 10 bps deviation from fair, annualised. See rest of the report for roll market pricing conventions Reference 2

3 Table of Contents 1. Cross-Asset Correlation and Volatility Contagion pages 4 to 7 a. Current Correlation and Contagion page 5 b. Historical Correlation and Contagion page 6 c. Intra-Sector Equity Correlations page 7 2. Equity Volatility: Volatility, Skew, Term Structure, and Correlation pages 8 to18 a. Global Overview page 9 b. US Volatility Focus: SPX, SPY, IWM, QQQ page 11 c. European Volatility Focus: SX5E, FTSE, DAX page 13 d. Emerging Markets Volatility Focus: EEM, EWZ, FXI page 15 e. Latin American Volatility Focus: IBOV, EWZ, EWW page Commodity Volatility pages 19 to 21 a. Oil page 20 b. Gold page Foreign Exchange (FX) Volatility page Sovereign Credit Monitor page Trade Ideas page 26 Reference 3

4 Cross-Asset Correlation & Contagion Reference 4

5 Rates Foreign Exchange Commodities Sovereign Credit Corporate Credit Equities 1/1/14 1/8/14 1/15/14 1/22/14 1/29/14 2/5/14 2/12/14 2/19/14 2/26/14 3/5/14 1/1/14 1/8/14 1/15/14 1/22/14 1/29/14 2/5/14 2/12/14 2/19/14 2/26/14 3/5/14 Asset Volatilities (1M Implied) Asset Volatilities (1M Realized) Cross-Asset Volatility Analysis Asset Class Implied and Realized Volatility % 15% % 1 1 VIX Rates (left axis) Oil Gold FX (G7) VIX CDX (left axis) Rates (left axis) FX Oil Gold Cross Asset Volatility Contagion Snapshot How to read this chart: Equity volatility is represented by the dark blue circles at the bottom, whereas other asset volatilities are represented by the light blue circles. The size of the circles represents the magnitude of each asset s volatility relative to equity volatility, while the size of overlap represents the degree of the volatility spillover onto equities. Volatility Spillover: measures the degree of co-movement between equity volatility and the other asset class volatility. For example, a volatility spillover number of 75% for an asset class means when that asset class volatility increases, 75% of the time, equity volatility (VIX) will also increase. Please see page 3 for further details. Cross Asset Correlation Snapshot (1M) Equities Corporate Credit Sovereign Credit Commodities Foreign Exchange Rates SPX RTY SX5E NKY EEM CDX IG LUCI US CDX HY SOVX Portugal Spain Oil Gold Copper EURUSD EURJPY AUDJPY USDJPY Tsy 10Y Tsy 30Y SPX RTY 81% SX5E 75% 6 NKY -6% 1% 11% EEM % -12% CDX IG -97% -81% -77% 13% -75% LUCI US -33% -14% -67% -1% -24% 39% CDX HY -94% -77% -77% 5% -75% 97% 43% SOVX 39% 48% 47% -13% 38% - -19% -42% Portugal -24% -15% -44% -28% -5% 25% 44% 38% -12% Spain - -12% -38% - -8% 39% 31% 11% 7 Oil -19% -17% -44% 7% -39% 27% 36% 34% -28% 43% 9% Gold -14% -19% -23% 1% 12% 44% 16% -23% 9% 25% 23% Copper 29% 32% 6 8% 48% -38% -22% -38% 24% - -22% -17% 17% EURUSD 32% 14% 29% 28% 25% -21% 8% -23% -1 4% -21% -4% -7% 19% EURJPY 47% 36% 48% 48% 43% -38% -5% -37% -1-2% -32% -4% -19% 28% 81% AUDJPY 46% 28% 45% 26% 59% -46% -11% -41% -19% -11% -22% -11% 22% 28% 25% 65% USDJPY 43% 44% 48% 5 45% - -17% -37% -9% -7% -3-4% -23% 27% Tsy 10Y 45% 26% 58% -9% 45% -45% -57% -36% 14% -9% -13% -35% -32% 9% 4% 34% 54% 51% Tsy 30Y 43% 29% 54% -3% 42% -41% -47% -32% 12% -6% -17% -19% -22% 19% 1% 37% 62% 58% 95% ; correlations greater than 75% highlighted in red Reference 5

6 Change in Vol Spillover (ppts) Volatility Spillover Change in Correlation (ppts) Cross-Asset Correlation Analysis Weekly Change in Asset Correlations (1M) Cross-Asset Correlation Range (1Y) 6 Equity vs. Other Assets (1M Correlation) Equity vs. Other Assets -8 vs. Oil vs. Sov Debt vs. EUR vs. Treasury vs. Credit vs. Gold -10 vs. Oil vs. Sov Debt vs. EUR vs. Treasury vs. Credit vs. Gold Last Close Value Historical Asset Correlations 8 SPX vs. Euro Currency (1M) 10 SPX vs. 10Y Treasury Yield (1M) -8 SPX vs. Sovereign Debt (1M, inverted) 10 SPX vs. Oil (1M) 6 75% -6 75% % - 25% - -25% -25% Mar-13 Jun-13 Sep-13 Dec-13-75% Mar-13 Jun-13 Sep-13 Dec-13 6 Mar-13 Jun-13 Sep-13 Dec-13-75% Mar-13 Jun-13 Sep-13 Dec-13 Cross-Asset Volatility Contagion Analysis Weekly Change in Volatility Contagion (1M) Cross-Asset Volatility Contagion Range (1Y) 3. 9 % 2. % 1. % 0. Vol Spillover Btw Equity vs. Other Assets % 1 Vol Spillover Btw Equity & Other Assets -1. vs. Treasury vs. Sov Debt vs. EUR vs. Gold vs. Credit vs. Oil vs. Treasury vs. Sov Debt vs. EUR vs. Gold vs. Credit vs. Oil Last Close Value Historical Cross-Asset Volatility Spillover 8 SPX vs. EUR Currency (1M) 8 SPX vs. 10Y Treasury Yield (1M) 8 SPX vs. Sovereign Debt (1M) 8 SPX vs. Oil (1M) Mar-13 Jun-13 Sep-13 Dec-13 Mar-13 Jun-13 Sep-13 Dec-13 Mar-13 Jun-13 Sep-13 Dec-13 Mar-13 Jun-13 Sep-13 Dec-13 ; please refer to page 2 on how we define and measure volatility spillover Reference 6

7 Change in Correlation Sector Healthcare (XLV) Technology (XLK) Cons Discr (XLY) Industrials (XLI) Financials (XLF) Materials (XLB) Utilities (XLU) Cons Staples (XLP) Energy (XLE) S&P 500 Index (SPX) 8 6 Implied & Realized Correlation Snapshot Implied Corr (1M) Percentile (1Y) Realized Corr (1M) Percentile (1Y) Imp-Rlz Spread Percentile (1Y) % 3% 36% 15.5% 92% 29.6% 84% 32.9% 91% -3.3% 23% 36.2% 76% 22.4% 7% 13.8% 98% 55.4% 66% 47.1% 3 8.3% 75% 63.6% 64% 55.9% 38% 7.7% 62% 45.3% 63% 30.6% 18% 14.7% 87% 49.6% 54% 46.3% 12% 3.3% 87% 42.2% 46% 23.6% 3% 18.6% 96% % 33.7% 7% 19.3% 93% 44.1% 57% 32.3% 36% 11.8% 61% Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 8 S&P Index (SPX) Implied Correlation (1M) Realized Correlation (1M) Consumer Staples (XLP) Intra-Sector Equity Correlations S&P 500, Technology, & Financial Sector Correlations (1M) 6 Weekly Change in Realized Correlation (1M) Consumer Staples, Discretionary, & Healthcare Sector Correlations (1M) Technology (XLK) Implied Correlation (1M) Realized Correlation (1M) Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 6 Consumer Discretionary (XLY) XLK XLV XLU XLE SPX XLI XLP XLB XLY XLF Financials (XLF) Implied Correlation (1M) Realized Correlation (1M) Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 8 Healthcare (XLV) 6 6 Implied Correlation (1M) Implied Correlation (1M) Implied Correlation (1M) Realized Correlation (1M) Realized Correlation (1M) Realized Correlation (1M) Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Materials, Industrials, & Energy Sector Correlations (1M) Materials (XLB) Industrials (XLI) Energy (XLE) Implied Correlation (1M) Realized Correlation (1M) Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan Implied Correlation (1M) Realized Correlation (1M) Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan Implied Correlation (1M) Realized Correlation (1M) Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Reference 7

8 Equity Volatility Reference 8

9 Return (YTD) 3M Implied Volatility Global Equity Index Volatility Equity Return vs. Volatility Implied vs. Realized Volatility 7% 3 EWZ 5% Rich RTY US 3% 25% SMI NDX EEM NKY SPX Europe FXI 1% Asia UKX SX5E -1% EM HSI RTY -3% KOSPI2 HSI SX5E 15% NDX US -5% EEM SPX KOSPI2 NKY UKX -7% SMI Europe FXI 1 Asia -9% EWZ Cheap EM -11% 9% 14% 19% 24% 29% 5% 5% 1 15% 25% 3 3M Implied Volatility 3M Realized Volatility Implied Volatility (3M) Volatility Skew (3M 90-11) 1 16% SPX SX5E NKY EEM SPX SX5E NKY EEM 14% 10 12% Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 8% 6% 4% 2% Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Volatility Term Structure (2Y-3M) Implied Correlation (3M) % -5% -1-15% SPX SX5E % -3 SPX SX5E NKY EEM 1-35% Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Historical SPX Implied & Realized Volatility Crash SPX 3M Realized Vol SPX 3M Implied Vol Credit Crisis 8 6 LTCM 2002 Recession Feb-83 Feb-85 Feb-87 Feb-89 Feb-91 Feb-93 Feb-95 Feb-97 Feb-99 Feb-01 Feb-03 Feb-05 Feb-07 Feb-09 Feb-11 Feb-13 Reference 9

10 Global Equity Index and ETF Volatility Index Volatility Summary International ETF Volatility Summary 1M ATM Imp Vol Implied Volatility Spreads (1M) Reference 10

11 S&P Volatility Snapshot Volatility Levels 1-Week Change %tile Since Credit Crisis %tile Relative To Short-Dated Volatility 3M Implied 12.9% 1 37% 3M Realized % 57% 3M Imp-Rlz Spread 0.9% 26% 19% Long-Dated Volatility 1Y Implied 15.3% 4% 47% 1Y Realized 11.4% 4% 57% 10Y Implied 24.5% 8 Skew & Term Structure 3M Skew 9. 87% 1Y Skew 5.7% 52% 99% 2Y-3M Term Str 3.8% 59% 91% 6 S&P 500 Volatility (Cross-Sectional) ; data from 1987-present S&P Skew (3M) Skew Range (1Y) Skew (1Wk Ago) Current Skew 35% 3 S&P Realized Volatility Cone S&P Term Structure Term Str Range (1Y) Current Term Str Term Str (1W Ago) 25% 15% ATM % 1M 2M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y S&P 500 Volatility (Time Series) 25% S&P Implied & Realized Volatility (3M) 35% S&P 1M, 1Y, 10Y Implied Volatilities 3 25% 15% 1 15% 1 5% 5% SPX Implied Volatility SPX Realized Volatility SPX 1M Imp Vol SPX 1Y Imp Vol SPX 10Y Imp Vol S&P Skew (3M) S&P Implied & Realized Correlations (3M) 12% 8 11% % 5 8% 7% 3 6% SPX Skew (90-11mny) +2std Avg -2std SPX Implied Correlation SPX Realized Correlation Reference 11

12 Put Sprd Collars Put Sprd Collars Put Sprd Collar Collars Collars Collar Put Sprds Put Sprds Put Sprds Puts Puts Puts U.S. Hedging Strategies SPY (S&P 500) QQQ (Nasdaq 100) IWM (Russell 2000) SPY Option Premiums (% of spot) QQQ Option Premiums (% of spot) IWM Option Premiums (% of spot) Strikes (% of spot) 1 month 3 months 6 months 12 months Strikes (% of spot) 1 month 3 months 6 months 12 months Strikes (% of spot) 1 month 3 months 6 months 12 months 100P P P P P P P P P P-90P P-90P P-90P P-110C P-110C P-110C P-120C P-120C P-120C C C C C C C SPY 3-mth Puts QQQ 3-mth Puts IWM 3-mth Puts ATM Put 90 Put ATM Put 90 Put ATM Put 90 Put 4.5 SPY 3-mth Put Spreads QQQ 3-mth Put Spreads IWM 3-mth Put Spreads Put sprd Put sprd Put sprd Put sprd Put sprd Put sprd SPY 3-mth Collars QQQ 3-mth Collars IWM 3-mth Collars Collar Put Sprd Collar Collar Put Sprd Collar Collar Put Sprd Collar 0.0 Reference 12

13 Volatility Levels Euro Stoxx 50 Volatility (Cross-Sectional) Eurostoxx Volatility Snapshot 1-Week Change %tile Since Credit Crisis %tile Relative To Short-Dated Volatility 3M Implied 16.3% 6% 46% 3M Realized 16.4% 14% 66% 3M Imp-Rlz Spread 0. 31% 14% Long-Dated Volatility 1Y Implied 17.9% 3% 52% 1Y Realized 15.9% 1% 69% 10Y Implied 20.6% 2% 16% Skew & Term Structure 3M Skew 8.4% 66% 87% 1Y Skew 4. 26% 7% 2Y-3M Term Str 2.4% 68% 61% 6 ; data from 1987-present Eurostoxx Skew (3M) Skew Range (1Y) Skew (1Wk Ago) Current Skew 3 Eurostoxx Realized Volatility Cone Eurostoxx Term Structure Term Str Range (1Y) Current Term Str Term Str (1W Ago) 5 25% % ATM M 2M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y Euro Stoxx 50 Volatility (Time Series) 24% Eurostoxx Implied & Realized Volatility (3M) 3 Eurostoxx 1M, 1Y, 10Y Implied Volatilities 22% 25% 18% 16% 14% 15% 12% 1 1 SX5E Implied Volatility SX5E Realized Volatility SX5E 1M Imp Vol SX5E 1Y Imp Vol SX5E 10Y Imp Vol Eurostoxx Skew (3M) Eurostoxx Implied & Realized Correlations (3M) 9% 8 SX5E Implied Corr SX5E Realized Corr 75% 8% 7% 6% 7 65% 6 55% 5 45% 5% 35% 3 SX5E Skew (90-11mny) +2std -2std Avg Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Reference 13

14 Put Sprd Collars Put Sprd Collars Put Sprd Collars Collars Collars Collars Put Sprds Put Sprds Put Sprds Puts Puts Puts European Hedging Strategies Strikes (% of spot) EuroSTOXX 50 FTSE 100 German Stock Index (DAX) EuroSTOXX 50 Option Premiums (% of spot) FTSE 100 Option Premiums (% of spot) SMI Option Premiums (% of spot) 1 month 3 months 6 months 12 months Strikes (% of spot) 1 month 3 months 6 months 12 months Strikes (% of spot) 1 month 3 months 6 months 12 months 100P P P P P P P P P P-90P P-90P P-90P P-110C P-110C P-110C P-120C P-120C P-120C C C C C C C EuroSTOXX 50 3-mth Puts FTSE mth Puts DAX 3-mth Puts 6.0 ATM Put 90 Put ATM Put 90 Put ATM Put 90 Put EuroSTOXX 50 3-mth Put Spreads FTSE mth Put Spreads DAX 3-mth Put Spreads Put sprd Put sprd Put sprd Put sprd Put sprd Put sprd EuroSTOXX 50 3-mth Collars FTSE mth Collars DAX 3-mth Collars Collar Put Sprd Collar Collar Put Sprd Collar Collar Put Sprd Collar 0.0 Reference 14

15 Emerging Markets Volatility (Cross-Sectional) EEM Volatility Snapshot Volatility Levels 1-Week Change %tile Since Credit Crisis %tile Relative To Short-Dated Volatility 3M Implied 22.9% 29% 32% 3M Realized 20.3% 38% 23% 3M Imp-Rlz Spread 2.6% 39% 71% Long-Dated Volatility 1Y Implied 2% 17% 51% 1Y Realized % 2Y Implied 22.9% 13% 57% Skew & Term Structure 3M Skew 7.8% 44% 1Y Skew 4.2% 24% 2Y-3M Term Str 0. 91% 6 EEM Realized Volatility Cone ; data from 1989-present EEM Skew (3M) Skew Range (1Y) Skew (1Wk Ago) Current Skew 35% EEM Term Structure Term Str Range (1Y) Current Term Str Term Str (1W Ago) % 3 15% ATM M 2M 3M 6M 1Y 2Y Emerging Markets Volatility (Time Series) 3 EEM Implied & Realized Volatility (3M) 35% EEM 1M, 1Y, 2Y Implied Volatilities 25% 3 25% 15% 15% 1 1 EEM Implied Volatility EEM Realized Volatility EEM 1M Imp Vol EEM 1Y Imp Vol EEM 2Y Imp Vol EEM Skew (3M) EEM Realized Correlations (3M) 15% 14% 13% 12% 11% 1 9% 8% 7% 6% 5% Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 EEM Skew (90-11mny) +2std -2std Avg EEM vs. SPX Correlation EEM vs. SX5E Correlation Reference 15

16 Put Sprd Collars Put Sprd Collars Put Sprd Collars Collars Collars Collars Put Sprds Put Sprds Put Sprds Puts Puts Puts Emerging Markets Hedging Strategies Strikes (% of spot) EEM (MSCI Emerging Markets) EWZ (MSCI Brazil) FXI (FTSE China 25) EEM Option Premiums (% of spot) EWZ Option Premiums (% of spot) FXI Option Premiums (% of spot) 1 month 3 months 6 months 12 months Strikes (% of spot) 1 month 3 months 6 months 12 months Strikes (% of spot) 1 month 3 months 6 months 12 months 100P P P P P P P P P P-90P P-90P P-90P P-110C P-110C P-110C P-120C P-120C P-120C C C C C C C EEM 3-mth Puts EWZ 3-mth Puts FXI 3-mth Puts ATM Put 90 Put ATM Put 90 Put ATM Put 90 Put EEM 3-mth Put Spreads EWZ 3-mth Put Spreads FXI 3-mth Put Spreads Put sprd Put sprd Put sprd Put sprd Put sprd Put sprd EEM 3-mth Collars EWZ 3-mth Collars FXI 3-mth Collars Collar Put Sprd Collar Collar Put Sprd Collar Collar Put Sprd Collar Reference 16

17 Volatility Levels Brazil Bovespa Volatility (Cross-Sectional) IBOV Volatility Snapshot 1-Week Change %tile Since Credit Crisis %tile Since 2008 Short-Dated Volatility 3M Implied % 14% 3M Realized 18.9% 33% 18% 3M Imp-Rlz Spread 5.1% 76% 69% Long-Dated Volatility 1Y Implied 24.1% 34% 4% 1Y Realized % 14% 2Y Implied 24.7% 24% Skew & Term Structure 3M Skew 5.6% 18% 6% 1Y Skew 4.5% 31% 46% 2Y-3M Term Str 0.7% 27% 43% 5 ; data from 1987-present IBOV Skew (3M) Skew Range (1Y) Skew (1Wk Ago) Current Skew IBOV Realized Volatility Cone IBOV Term Structure Term Str Range (1Y) Current Term Str Term Str (1W Ago) 35% % 1 15% ATM M 2M 3M 6M 1Y 2Y Brazil Bovespa Volatility (Time Series) 33% IBOV Implied & Realized Volatility (3M) IBOV 1M, 1Y, 2Y Implied Volatilities 28% 35% 23% 3 25% 18% 13% Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 IBOV Implied Volatility IBOV Realized Volatility IBOV Skew (3M) 15% Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 IBOV 1M Imp Vol IBOV 1Y Imp Vol IBOV 2Y Imp Vol IBOV Realized Correlations (3M) 1 9% 8% 7% 6% 5% 4% 3% 2% 1% Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 IBOV Skew (90-11mny) +2std -2std Avg Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 IBOV vs. SPX Correlation IBOV vs. SX5E Correlation Reference 17

18 Put Sprd Collars Put Sprd Collars Put Sprd Collars Collars Collars Collars Put Sprds Put Sprds Put Sprds Puts Puts Puts Latin American Hedging Strategies Brazil BOVESPA Index EWZ (MSCI Brazil) EWW (MSCI Mexico) BOVESPA Option Premiums (% of spot) EWZ Option Premiums (% of spot) EWW Option Premiums (% of spot) Strikes (% of spot) 1 month 3 months 6 months 12 months Strikes (% of spot) 1 month 3 months 6 months 12 months Strikes (% of spot) 1 month 3 months 6 months 12 months 100P P P P P P P P P P-90P P-90P P-90P P-110C P-110C P-110C P-120C P-120C P-120C C C C C C C BOVESPA 3-mth Puts EWZ 3-mth Puts EWW 3-mth Puts ATM Put 90 Put ATM Put 90 Put ATM Put 90 Put BOVESPA 3-mth Put Spreads EWZ 3-mth Put Spreads EWW 3-mth Put Spreads Put sprd Put sprd Put sprd Put sprd Put sprd Put sprd BOVESPA 3-mth Collars EWZ 3-mth Collars EWW 3-mth Collars Collar Put Sprd Collar Collar Put Sprd Collar Collar Put Sprd Collar Reference 18

19 Commodity Volatility Reference 19

20 Volatility (%) Volatility (%) Skew (%) Skew (%) Volatility (%) Volatility (%) Commodity Overview - Oil Oil Volatility Snapshot WTI Volatility (Commodity) USO Volatility (Equity) Latest Weekly Chg Percentile (1Y) Latest Weekly Chg Percentile (1Y) $105 $100 WTI Futures Curve 1M Implied 1M Realized 1M Imp-Rlz Spd 18.6% 29% 19.2% 38% 16.7% 27% 15.9% 24% 1.9% 56% 3.3% 77% $95 6M Implied 6M Realized 6M Imp-Rlz Spd 18.2% 11% 19.8% 16% 17.5% 2% 16.6% 2% 0.7% 55% 3.2% 75% $90 $85 1M Skew 6M-1M Trm Str -0.2% 7% 0.9% 8% -0.3% 35% 0.6% 19% $80 APR 14 JUL 14 OCT 14 JAN 15 MAY 15 AUG 15 NOV 15 FEB 16 Latest (Mar-07) A Week Ago (Feb-28) WTI Volatility (Commodity) WTI Implied vs. Realized Vol USO Volatility (Equity) USO Implied vs. Realized Vol M Implied 1M Realized Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-1 1M Implied 1M Realized WTI Skew (Front Month) USO Skew (1M) 8 6 Front Month Skew (25-Delta) 8 6 1M Skew (25-Delta) Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan WTI Volatility Term Structure M 2M 3M 6M 1Y 2Y Latest (Mar-07) A Week Ago (Feb-28) USO Volatility Term Structure M 2M 3M 6M 1Y Latest (Mar-07) A Week Ago (Feb-28) Reference 20

21 Volatility (%) Volatility (%) Skew (%) Skew (%) Volatility (%) Volatility (%) Commodity Overview - Gold 1M Implied 1M Realized 1M Imp-Rlz Spd 6M Implied 6M Realized 6M Imp-Rlz Spd 1M Skew 6M-1M Trm Str Latest Gold Volatility Snapshot Gold Volatility (Commodity) GLD Volatility (Equity) Weekly Chg Percentile (1Y) Latest Weekly Chg Percentile (1Y) 14.1% 15% 14.5% 15% 14.2% 22% 14.3% 17% 0. 52% 0.1% 59% 16.4% 17% 16.5% 16% 19.5% 12% 18.4% 12% -3.2% 62% -1.9% 65% % - 0.9% 6% 2.2% 89% 2. 95% Comex Gold Futures Curve $1,550 $1,500 $1,450 $1,400 $1,350 $1,300 $1,250 $1,200 APR 14 #N/A N/A #N/A N/A OCT 15 #N/A N/A JUN 18 #N/A N/A Latest (Mar-07) A Week Ago (Feb-28) Comex Gold Volatility (Commodity) 50 Gold Implied vs. Realized Vol 50 GLD Volatility (Equity) GLD Implied vs. Realized Vol M Implied 1M Realized Gold Skew (Front Month) 10 Front Month Skew (25-Delta) Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-1 1M Implied 1M Realized 8 1M Skew (25-Delta) 6 GLD Skew (1M) Gold Volatility Term Structure 0 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan GLD Volatility Term Structure M 2M 3M 6M 1Y 2Y Latest (Mar-07) A Week Ago (Feb-28) 13 1M 2M 3M 6M 1Y Latest (Mar-07) A Week Ago (Feb-28) Reference 21

22 Foreign Exchange (FX) Volatility Reference 22

23 Volatility Volatility (%) 1M Implied Vol Change in Vol (pts) Weekly Change (%) Spot YTD Chg 1M Imp Vol Percentile 1M Skew** Percentile Majors EUR % 6.3% 2% 0.45% 12% JPY % 8.3% % GBP % 6.1% 0. 16% CHF % 7.2% 2% % CAD % 6.8% 49% % AUD % 8.7% 23% 22% NZD % 8.7% 5% % Crosses AUDJPY % 10.9% 1.65% 51% EURGBP % 6.1% 9% 0.25% 57% CHFJPY % 8.2% 8% 0.25% 11% Foreign Exchange (FX) Monitor Foreign Exchange (FX) Snapshot Weekly Change in Spot (USD Base) ; ** Skew defined as the difference in imp vol between the 25-delta put vs. call 2. USD Strength % USD Weakness 1. % 0. -% -1. -% EUR JPY GBP CHF CAD AUD NZD 1M Implied Vol 1-Year Range Weekly Change in 1M Implied Volatility 18% 16% 14% 12% 1 8% 6% 4% 2% EUR JPY GBP CHF CAD AUD NZD Last Close Value EUR JPY GBP CHF CAD AUD NZD 11% EURUSD 1M Vol 1 9% 8% 7% 6% 1M Implied Vol 5% 1M Realized Vol 4% Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 18% 16% 14% 12% 1 Implied vs. Realized Volatility USDJPY 1M Vol 8% 1M Implied Vol 6% 6% 1M Realized Vol 4% 1M Implied Vol 1M Realized Vol 4% 2% Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Volatility Skew USDJPY 1M Skew 18% AUDUSD 1M Vol 16% 14% 12% 1 8% 8.8% EURUSD 1M Skew 1% 1% AUDUSD 1M Skew % 1% Current Skew Current Skew 1% Skew (1Wk Ago) 8. Skew (1Wk Ago) 1% 11. 1Y average 7.6% 1Y average Current Skew 1% 1% 7.2% Skew (1Wk Ago) % 1Y average 9.5% 6.8% % 8.5% 8.5% % 8. 10D Put 25D Put ATM 25D Call 10D Call 10D Put 25D Put ATM 25D Call 10D Call 10D Put 25D Put ATM 25D Call 10D Call Reference 23

24 Sovereign Credit Monitor Reference 24

25 CDS Spread (bps) CDS Spread (bps) CDS Spread (bps) CDS Spread (bps) CDS Spread (bps) CDS Spread (bps) CDS Implied Survival Probability (%) Change in 5Yr CDS Spread (bps) Sovereign Credit (CDS) Monitor Sovereign Credit Snapshot 5Y CDS Spread (bps) Government Bonds 0 Biggest Weekly CDS Movers Current Level 1-Week Change 52-Week High 2-Year Bond Yield 5-Year Bond Yield 10-Year Bond Yield -2 SOVX Europe Greece* Portugal % 3.4% 4.6% -6 Ireland % % 3.1% Italy % 2.1% 3.4% -8 Spain % % France % 1.1% 2.2% -10 Germany % 0.7% 1.6% -12 *Greek CDS payouts have already been triggered ITRX SOVX PORTUGAL SPAIN ITALY IRELAND FRANCE Sovereign CDS 1-Year Range CDS Implied Probabilities of Survival ITRX SOVX ITALY SPAIN IRELAND PORTUGAL M 3M 6M 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y French Bonds Portugese Bonds Irish Bonds Spanish Bonds Last Close Value European CDS 1-Year History 110 ITRX SOVX WESTERN EUROPE 5YR CDS 200 IRELAND 5YR CDS 600 PORTUGAL 5YR CDS Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 FRANCE 5YR CDS ITALY 5YR CDS SPAIN 5YR CDS Reference 25

26 Trade Ideas Reference 26

27 Skew Ratio Featured Equity Derivatives Trade Ideas Hedge with SPY 1x2 Put Spread While S&P is making new all-time highs, sentiment in the options market remains cautious. Two indicators we track S&P skew and the CS Fear Barometer are both signaling increased hedging by option investors. For example, S&P 1M put-side skew (25-delta/50-delta ratio) steepened last week to the 84 th percentile high while the CSFB Index remains elevated at above 30. As a result, for investors who anticipate a moderate correction (and not a large 1+ sell-off), we recommend hedging with 1x2 ratio put spreads to take advantage of the current steep put skew. Specifically, we recommend buying one SPY Apr strike put and selling two of the 176-strike puts for net zero premium (spot ref ). Protection starts down 3.3% from current spot while the trade has a max payout of $6 if SPY declines to 176 (-6.5%) at expiry. The trade will lose money at expiry if SPY is below 170 (-9.7%). See trade payoff diagram below. The risk to buying a 1x2 ratio put spread is significant. Exhibit 1: SPX 1M Put Skew (25D/50D Ratio) Exhibit 2: Trade Payoff Diagram SPX 1M Put Skew (25D/50D Ratio) Hedges with Total Cost of 50bps We take a look at how much protection can be had for 50bps across a variety of broad market indices and sector ETFs. In particular we review the two most popular plain-vanilla hedging strategies: long put vs. put spread (with long put strike fixed to 95%) Investors looking for a broad market hedge should do so with SPY and QQQ put strategies as those look most attractive. Among the sectors and international ETFs, investors can get the most protection with XLP (Consumer Staples), XLU (Utilities) and EFA (MSCI EAFE Index). ***The risk to buying a put or put spread is limited to the premium paid. *** Exhibit 1: Put Strike in Long Put Strategy Broad market Select Sector Specialty SPY QQQ IWM XLY XLP XLE XLF XLV XLI XLK XLB XLU EEM EFA OIH XHB 2M M M M Exhibit 2: Short Put Strike in Put Spread Strategy with Long Put Strike 95% Broad market Select Sector Specialty Maturity SPY QQQ IWM XLY XLP XLE XLF XLV XLI XLK XLB XLU EEM EFA OIH XHB 2M M M M Reference 27

28 Contacts James Masserio Head, US Equity Derivatives Credit Suisse Equity Derivatives Strategy and Structuring Grace Koo Head, Equity Product Strategies Edward K. Tom Head, Equity Derivatives Strategy Credit Suisse Equity Derivatives Sales Tim Scanlon Head, Equity Derivatives Sales Michael Clark Head, Structured Retail Products Credit Suisse Equity Derivatives Trading Khoa Le Head, Equity Derivatives Flow Trading Robert Sowler Head, Equity Derivatives Structured Trading Disclaimer: Please follow the attached hyperlink to an important disclosure: Structured securities, derivatives and options are complex instruments that are not suitable for every investor, may involve a high degree of risk, and may be appropriate investments only for sophisticated investors who are capable of understanding and assuming the risks involved. Supporting documentation for any claims, comparisons, recommendations, statistics or other technical data will be supplied upon request. Any trade information is preliminary and not intended as an official transaction confirmation. Use the following links to read the Options Clearing Corporation s disclosure document: Because of the importance of tax considerations to many option transactions, the investor considering options should consult with his/her tax advisor as to how taxes affect the outcome of contemplated options transactions. This material has been prepared by individual traders or sales personnel of Credit Suisse Securities Limited and not by the Credit Suisse research department. It is provided for informational purposes, is intended for your use only and does not constitute an invitation or offer to subscribe for or purchase any of the products or services mentioned. The information provided is not intended to provide a sufficient basis on which to make an investment decision. It is intended only to provide observations and views of individual traders or sales personnel, which may be different from, or inconsistent with, the observations and views of Credit Suisse research department analysts, other Credit Suisse traders or sales personnel, or the proprietary positions of Credit Suisse. Observations and views expressed herein may be changed by the trader or sales personnel at any time without notice. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, expressed or implied is made regarding future performance. The information set forth above has been obtained from or based upon sources believed by the trader or sales personnel to be reliable, but each of the trader or sales personnel and Credit Suisse does not represent or warrant its accuracy or completeness and is not responsible for losses or damages arising out of errors, omissions or changes in market factors. This material does not purport to contain all of the information that an interested party may desire and, in fact, provides only a limited view of a particular market. Credit Suisse may, from time to time, participate or invest in transactions with issuers of securities that participate in the markets referred to herein, perform services for or solicit business from such issuers, and/or have a position or effect transactions in the securities or derivatives thereof. The most recent Credit Suisse research on any company mentioned is at , CREDIT SUISSE Reference 28