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 131n, 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 -]an
Valuation date for all the numbers below: 2-Feb
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.
Strike Implied- Current
Contract Vol strike i Date Realized vol Realized Implied
CLHS 60% 13-Jan-15 67% -7% 81%
CLJS 43% 13-Jan-15 65% -22% 50%
CLKS 42% 14-Jan-15 61% -20% 48%
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 6° percentile. Here is a
graph showing performances over a 13 day period:
73d Return
15%
10%
5%
0%
-10%
-15%--'
Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15
Also useful, below chart shows implied vol atm mid for the 2nd month futures over the last ly:
CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0090135
CONFIDENTIAL SDNY_GM_00236319
EFTA01387458