EFTA01410819

Subject: FW: ***Market Volatility Bulletin: Election Risk Underpriced? - Credit Suisse Equity Derivatives Strate y*** From: Stewart Oldfield Date: Wed, 28 Sep 2016 14:41:54 -0400 To: From: Xu, Mandy [mailto: Sent: Monday, September 26, 2016 9:34 AM To: Xu, Mandy Subject: ***Market Volatility Bulletin: Election Risk Underpriced? - Credit Suisse Equity Derivatives Strategy*** {Header 1} MARKET COMMENTARY Market Volatility Bulletin Election Risk Underpriced? Link to Report: Market Volatility Bulletin WHAT STANDS OUT: Implied volatilities declined significantly across asset classes last week. Vols are currently at/near 1-year lows for equities, rates, gold, and several FX pairs (EUR, CHF, AUD). The only exception is oil. WTI 1M implied surged 4.6 vol pts last week to 42% on speculation of potential supply cut. USO (oil ETF) skew flattened significantly on call demand. Ahead of tonight's debate, it's remarkable how little election risk is currently being priced into the equity vol markets. Both VIX spot and futures are near lows. SPX weekly options are pricing in less vol for the election than for an average Fed meeting (see chart below). This is despite a recent tightening in the polls. Our analysis shows that historically elections have been meaningful drivers of equity volatility. Over the past 6 elections, the VIX has increased every single time in the month leading up to Election Day, with an average gain of 3.5 vol pts. Looking back further at all post-war elections (1948-2012), we find that realized volatility is highest in October of an election year than any other month during election season (Jul-Nov). Given EFTA01410819 this setup, we like buying VIX call spreads for investors looking to position for a similar pickup in volatility this year. See pg 14 for trade details. Chart: SPX Weekly Options Pricing in Less Volatility for the Election Than a Fed Mtg Source: CS Equity Derivatives Strategy MORE INSIDE (Market Volatility Bulletin) Mandy Xu, CFA Equity Derivatives Strategy 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 EFTA01410820 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. 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