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February 3, 2014
The trade channel: Gross exports to EM are a little less than 5% of GDP for the US; therefore trade exposures seem
manageable except under a very broad-based EM slowdown. Goldman Sachs US economist Jan Hatzius estimates that
assuming a 10% drop in overall EM import demand as a result of the recent troubles would mechanically shave 0.5
percentage points from real GDP growth1.
The financial channel: BIS data reports overall exposure of the DM banking system to EM at around US$5trn, close to 20%
of overall external positions, so DM bank exposures to key EM economies do not look too alarming. US banking exposures
are likewise quite small, accounting for 5.5% of total banking assets when looking at EM overall and 1.9% when looking at
the most affected countries (Argentina, Brazil, Russia, South Africa, Turkey, Indonesia and India).
Impact on US corporate profits: Our economists estimate that EM subsidiaries account for 5.5% of US corporate profits overall
and for 1.0% when looking only at the most troubled economies. Again, short of a very bad outcome with significant contagion
across EM and the broader global economy, this is a manageable issue in our view.
Strongest volatility response in Turkey and EWZ: Russia, Turkey, China and Brazil top the list of ytd market declines with
returns between -11% and -8%. Two of the largest ytd shifts in implied volatility have come from Turkey and Brazil (EWZ). Both
are EMs with large current account deficits and 1m implied volatility levels have increased seven and five vol points respectively.
While the EWZ is down 12%, implieds are only up 5.4 points, so one could argue that SPX implieds have taken a larger hit given
the respective index return. SPX 1m implied vol is currently at 15.6 and has increased 4 vol points in 2014 or approximately 1-to1 relative to the spot index move.
Why is volatility up so much in the US? As we saw last June, periods of extreme pressure in EM can spill over to DM markets
on a day-by-day basis. One line of reasoning is due to liquidity. Given low liquidity in many EM asset classes, investors may use
DM markets as hedging tools during times of stress or because pressure to reduce risk more generally forces selling of more
liquid assets. As we highlighted in last weeks edition of The Buzz, S&P 500 1m skew has been well bid and VIX open interest
and volume has been higher than one might expect given the low direct links between EM and DM trade and banking channels.
February 3, 2014
44
39
35
34 34
34
29
26 26
24
17
1y Low
Return (%)
19
15
15
RDXUSD
31 31 31
29
29
26
23 23
21 21
19
14
1y High
40
40
20 20
18 18
17 17 17
12 13 11
9
4
25
24
28
28
25
23
12
11
10
12
12 12
39
38
32
34
29
34
35
33
25
30
24
23
10
15
13
30
15
30
27
25
25
23
19
12
13
18
13
15
12
18
19
18
17
13
12
10
HSCEI
-9
12
11
17
10
17
12
16
11
15
11
18
17
14
13
2
3
-4
-4
FTSE 100
-4
NIFTY
-3
STOXX50E
-3
S&P/ASX 200
-3
Russell 2000
-3
DAX
-3
NASDAQ 100
-2
STOXX 600
-2
TWSE
-2
IBEX 35
S&P TSX 60
+2
-4
Korea (EWY)
-9
Emerging (EEM)
-9
Mexico (EWW)
-8
-7
Japan (EWJ)
-7
1
2
-6
-4
-12
-8
-4
12
Sector ETFs
4
Return (%)
3
6
3
Canada (EWC)
-6
Energy (XLE)
-6
Staples (XLP)
-5
Materials (XLB)
-5
Industrials (XLI)
-4
+1
Utilities (XLU)
12
4
2
-3
-4
Tech (XLK)
Financials (XLF)
5
-8
-10
Taiwan (EWT)
S&P 500
-12
China (FXI)
-5
FTSE MIB
-8
Kospi 200
-12
-8
Hang Seng
12
1y Low
32
26
19
17
1y High
33
27
24
14
34
-9
Bovespa
Brazil (EWZ)
Turkey
Return (%)
-11
Nikkei 225
17 16 16 15
15 14
14
Country ETFs
42
40 39
+3 0
-10
-5
10
February 3, 2014
Exhibit 2: Implied volatility response versus year-to-date equity returns across global indices.
X axis = ytd equity return (local currency); Y axis = change in 1m 50 delta implied volatility. As of January 31, 2014.
8
7
XU030
y = -0.06x + 3.53
Euro Stoxx 600
RUT
DAX
FTSE 100
SPX Euro Stoxx 50
5
RDXUSD
N225
EEM
NDX
HSI ASX 200 TWSE
HSCEI
IBEX
TSE60
Bovespa
FTSE MIB
Kospi 200
NIFTY
1
0
-12
-10
-8
-6
-4
-2
YTD return (%)
Perspective: Avg VIX level of 14.2 in January 2014 = avg over calendar year 2013
For all of the talk about heightened levels of volatility, the market is only down -3.6% from its closing high. S&P 500 realized
volatility over the month of January was 12.6 (a whopping 1.6 vol points above the full year realized volatility of 11 over 2013) and
the average VIX level in January was 14.2, the exact level of the average VIX level in 2013. But all of these statistics mask an increase
in volatility over the back-half of the month with five and ten-day realized volatility at 15, and Fridays closing VIX level of 18.41 was
the ytd high.
Growth heals all wounds? We also think a patch of softer US data and the fall in the flash China PMI were central to the recent
market declines. EM worries may have acted as a coordinating mechanism for investors already feeling overly exposed to cyclical
assets during a softer patch for US and global data and this week brings fresh US data including the ISM on Monday, ECB/BOE/RBA
decisions throughout the week and payrolls on Friday. While the Chinese markets are closed for the Lunar New Year Holiday,
Chinas official manufacturing PMI held in at 50.5 and a solid US ISM could remove a lot of the gloom that has descended on stocks.
February 3, 2014
Exhibit 3: Russia, China and Brazil have tended to be hit the hardest during EM equity pullbacks over the last decade
Returns on MSCI EM and the other global indices are in local currency. Returns on country ETFs are in USD. Data from January 2004 to January 31, 2014.
VIX Chg
3
5
3
0
12
9
13
11
33
14
1
7
9
18
4
21
10
11
4
9
5
Mar-04
Mar-04
Apr-04
May-04
Mar-05
Apr-05
Oct-05
Oct-05
May-06
Jun-06
Feb-07
Mar-07
Jul-07
Aug-07
Oct-07
Jan-08
Nov-08
Nov-08
Jan-09
Mar-09
Jun-09
Jun-09
Oct-09
Nov-09
Jan-10
Feb-10
Apr-10
May-10
Jan-11
Feb-11
Apr-11
Oct-11
Oct-11
Nov-11
Mar-12
Jun-12
Jan-13
Jun-13
19 epsiode median
Dec-13
Jan-14
Days
23
35
53
15
35
11
25
85
16
55
22
15
28
46
51
182
28
82
173
35
31
RDXUSD
HSCEI
Bovespa
XU030
Hang Seng
TWSE
NIFTY
FTSE MIB
Nikkei 225
Kospi 200
IBEX 35
Russell 200
DAX
TOPIX
FTSE 100
STOXX50E
NASDAQ 100
STOXX 600
S&P TSX 60
S&P/ASX 200
S&P 500
Dates
5
2
0
-5
-3
-5
-8
-10
-9
-11
-15
-20
-9
-14 -14
-16
-18
-13
-12 -11
-4
-4
0
-2
-3 -3
-3
-2 -2
-7
-3 -4
-4
-6
-6
-7 -7
-9 -8 -8 -8 -8 -8
-8
-9 -9
-10 -10 -10
-6
-10
-9 -9
-12
-15 -15
Median move
Current ytd move
-8
-7
-6
-11 -11
-14 -14
-13
-19
February 3, 2014
A deeper dive into tail moves: Distributional characteristics of S&P 500 max drawdowns
In this section we look more broadly at past S&P 500 peak-trough declines, in order to get a better understanding of how the recent
drop in the S&P 500 compares from an historical perspective. Using daily rolling data, we define a max drawdown to be the largest
peak-to-trough decline experienced when holding an asset over a specific time interval (Exhibit 4).
Historical perspective: Back to 1960, the median S&P 500 drawdown over a one-week period has been -1%. That is 1/3rd of the
median drawdown over a one-month period and about 1/7th of the median drawdown over a six-month period. We found
similar numbers over the more recent sample from 1990-present.
Current episode: The max drawdown on the S&P 500 since its 2014 high of 1848.4 on January 15 has been -4% based upon
closing levels from peak to local trough, a larger decline than the median SPX drawdown over past 2-week and 1-month periods.
Whereas the drawdown analysis only focuses on negative returns, exhibit 5 broadens the study and looks at the entire S&P 500
return distribution over different windows. For example, on a daily rolling basis the median one-month return on the S&P 500 is
about 1.1% and a bottom decile return is -4.6%, slightly lower than the S&P 500 decline in January.
0%
(1)%
Std Dev
(4)%
(6)%
75 %-ile
(2)%
-0.43
0.43
0.43
-1.98 Median
3.00
0.95
(3)%-4.91
7.99
1.83
25 %-ile
-8.70
14.32
3.07
(6)%
-11.75
19.44
4.05
(8)%
(8)%
(10)%
(12)%
-18.64
29.28
8.01
(2)%
Maximal Drawdown
Maximal Drawdown
(2)%
0%
Median
(4)%
10.57
0.63
20.50
(3)%
25 %-ile
(6)%
(6)%
(8)%
(8)%
(10)%
(12)%
(14)%
Stats
25 %-ile
Median
75 %-ile
Std Dev
(14)%
1-week
2-week
1-month
Investment Horizon
3-months
6-months
1-week
2-week
1-month
3-months
6-months
Investment Horizon
February 3, 2014
25%
Frequency (%)
20%
15%
10%
5%
(%)
3m
-41.8
-11.9
-7.7
-1.6
2.7
2.1
6.7
10.1
13.1
38.8
22 - 24
18 - 20
14 - 16
10 - 12
6-8
2-4
(2) - 0
(6 ) - (4)
(10 ) - (8)
(14 ) - (12)
(18 ) - (16)
(22 ) - (20)
(26 ) - (24)
(30) - (28)
0%
February 3, 2014
Cross Asset Risk Barometer: EM credit spreads and FX implieds remain elevated
Exhibit 6: Outside Japan, 1m implieds remain below median levels across global indices. Credit spreads and FX 1m implieds are mixed. Commodity 1m implieds
remain low.
Data: January 2, 2007 January 31, 2014. Spanish and Italian 10y bond spreads in the table below refer to the spreads versus 10y German bonds. In the bar graph below
we benchmark changes relative to December 31, 2013.
1y
Peak
39.0
39.0
20.1
27.1
20.5
23.7
22.2
32.1
18.7
19.6
22.6
19.7
22.4
34.7
32.1
19.2
33.6
25.7
30.9
29.4
16.9
20.7
17.5
25.5
Overall
Peak
88.8
92.3
68.0
77.3
80.9
75.8
81.5
70.1
72.2
75.9
73.4
74.1
78.4
113.8
108.6
66.9
95.4
110.2
161.7
100.7
83.0
86.6
67.0
87.1
% to
Peak
245
282
356
234
339
284
350
226
363
393
303
354
299
400
373
391
345
566
529
553
618
506
439
380
Curr
Peak Date %-ile
27-Oct-08 70
27-Oct-08 64
16-Oct-08 42
27-Oct-08 41
20-Nov-08 41
16-Oct-08 38
10-Oct-08 38
16-Oct-08 38
20-Nov-08 38
16-Oct-08 34
16-Oct-08 31
20-Nov-08 30
20-Nov-08 29
27-Oct-08 27
24-Oct-08 26
28-Oct-08 24
27-Oct-08 23
27-Oct-08 19
26-Nov-08 19
27-Oct-08 11
13-Oct-08
8
29-Oct-08
8
28-Oct-08
7
31
Current %-ile
(Since Jan. 2007)
Index
Current
340
EEMCDS
I iTraxx Asia ex Jap.
150
I Italy 10y Bond Spr.
221
210
SSpain 10y Bond Spr.
I iTraxx Senior Fin.
102
82
EEU IG CDX 5y
I US IG CDX 5y
71
HUS HY CDX 5y
351
316
EEU XO CDX 5y
57
SSovX WE 5y
Chg
(1w)
-1.5
2.8
-2.2
-1.5
-3.5
-2.3
-1.0
-0.3
0.0
1.1
1y
Peak
378
171
348
385
200
133
98
478
528
108
Overall % to
Curr
Peak
Peak Peak Date %-ile
1022
201 23-Oct-08
86
650
334 24-Oct-08
66
552
150 9-Nov-11
65
633
202 24-Jul-12
58
361
256 25-Nov-11 35
217
164 5-Dec-08
23
283
296 20-Nov-08 14
1674
377 9-Mar-09
11
1158
266 5-Mar-09
10
387
578 25-Nov-11
5
ZZAR
MMXN
BBRL
KKRW
uAUD
uNZD
JJPY
CCHF
uGBP
uEUR
2.5
0.1
0.1
0.5
0.4
0.4
-0.7
0.5
0.1
0.5
20.1
17.6
18.7
13.3
15.2
15.8
17.5
12.5
9.8
10.0
70.0
74.9
75.0
75.4
47.8
42.8
37.3
25.3
30.8
28.8
287 23-Oct-08
502 22-Oct-08
447 23-Oct-08
813 24-Oct-08
346 27-Oct-08
275 27-Oct-08
299 27-Oct-08
193 18-Dec-08
329 27-Oct-08
306 30-Oct-08
67
59
51
35
33
31
26
25
25
16
30.0
27.2
31.9
60.0
83.6
117.4
281
427
493
25
5
5
25
50
75
Curr %-ile
Gold
100 Copper
WTI
15.8
15.9
19.8
1.0
2.1
1.2
29-Oct-08
31-Oct-08
14-Jan-09
25
50
75
100
25
50
75
100
50
75
Curr %-ile
100
50
40
37 37 36
34 33
32
30
20
10
EUR
CHF
JPY
BRL
AUD
MXN
KRW
SovX WE 5y
EU XO CDX 5y
US IG CDX 5y
US HY CDX 5y
EU IG CDX 5y
EMCDS
NIFTY
Bovespa
MIB
KOSPI 200
HSCEI
TOPIX
43 42
ZAR
Credit
EEM
Nikkei 225
RDXUSD
Hang Seng
IBEX
SMI
S&P/TSE 60
Nasdaq 100
EuroStoxx 50
ASX 200
Russell 2000
VIX
CAC40
TWSE
DAX
S&P 500
FTSE 100
25
Gold
Chg
(1w)
3.5
3.3
1.2
0.3
0.3
1.7
1.9
1.7
1.1
2.2
1.7
0.9
2.6
2.1
1.3
2.1
-0.5
2.5
3.8
0.4
1.1
1.4
2.6
1.7
Copper
Index
Current
Nikkei 225
25.7
TOPIX
24.1
Switzerland
14.9
Spain (IBEX)
23.2
VIX
18.4
Euro Stoxx 50
19.7
Germany (DAX)
18.1
Italy (MIB)
21.5
S&P 500
15.6
UK (FTSE 100)
15.4
France (CAC)
18.2
NDX
16.3
Russell 2000
19.6
China (HSCEI)
22.8
Em. Mkts. (EEM) 23.0
Australia
13.6
Bovespa
21.4
Hang Seng
16.6
Russia
25.7
India (NIFTY)
15.4
Canada
11.6
KOSPI 200
14.3
Taiwan
12.4
Average
18.6
Current %-ile
(Since Jan. 2007)
WTI
38 38
29 27
27 26 25
21 20 20 20
18
24
15 13
13
17 17 16
15 14
10
22
10
9
3
13
8
1
0
-10
-20
-5
-1
-7
-2
-8
-13
February 3, 2014
Skew View: Highest in the US on both an absolute and percentile rank basis
Exhibit 7: Russell 2000 and S&P 500 one-month skew are highest on an absolute and percentile basis, RDXUSD and FTSE MIB are lowest
Normalized skew: (25 delta put 25 delta call) / 50 delta implied volatility. Percentiles are calculated using data from January 2, 2007 January 31, 2014.
Global
Indices
Option Volatility
(1m Implied)
Option Skew
(Norm. 1m 25 delta)
0.35
Option Volatility
(1m Implied)
Option Skew
(Norm. 1m 25 delta)
EEWC (Canada)
EEWH (Hong Kong)
EEEM (Emer. Mkts.)
FFXI (China)
EEWY (Korea)
EEWJ (Japan)
EEWT (Taiwan)
EEWZ (Brazil )
Average
25
50
25
50
75
100
75
100
International ETFs
25
50
Vol %-ile
13.3
15.3
23.0
24.5
23.1
19.4
17.7
27.3
20.4
1.1
0.5
1.3
0.6
1.9
2.8
2.0
1.0
1.4
8
11
26
32
28
44
12
34
24
0.30
0.20
0.23
0.15
0.17
0.12
0.13
0.15
0.18
95
59
54
48
31
22
15
10
42
0.46
0.46
0.42
0.34
0.45
0.58
0.55
0.44
0.46
6/19/12
8/15/12
8/11/11
5/21/10
12/11/07
7/17/09
2/16/07
8/11/11
52
125
81
121
169
382
321
201
182
Vol %-ile
75
100
Skew %-ile
Skew %-ile
1m Normalized Skew
0.45
0.40
US Sector
ETFs
Global Indices
0.31 0.30
0.30
0.28 0.28
0.25
Sectors
Country ETFs
0.35
0.30
0.25 0.25
0.24
0.20
0.27 0.26
0.21 0.20 0.20
0.19 0.19
0.15
0.23
0.17 0.15
0.14 0.14 0.13 0.13 0.13
0.20
0.17 0.15
0.15
0.10
0.13
0.12
0.10
0.05
XLK (Tech)
XLV (Healthcare)
XLU (Utilities)
XLY (Discretionary)
XLB (Materials)
XLF (Financials)
XLE (Energy)
XLP (Staples)
XLI (Industrials)
EWJ (Japan)
EWT (Taiwan)
EWZ (Brazil )
FXI (China)
EWY (Korea)
EWC (Canada)
Russia
Taiwan
Italy (MIB)
Bovespa
KOSPI 200
India (NIFTY)
Spain (IBEX)
Nikkei 225
China (HSCEI)
TOPIX
Switzerland
Hang Seng
NDX
Canada
EuroStoxx 50
Germany (DAX)
France (CAC)
Australia
Russell 2000
UK (FTSE 100)
S&P 500
0.00
February 3, 2014
0.33
0.28
0.23
Jan-13
Apr-13
Jul-13
Oct-13
0.34
0.31
0.28
0.25
Jan-13
Jan-14
0.38
0.32
Apr-13
Jul-13
Oct-13
Jan-14
0.28
0.24
0.20
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
0.28
0.25
0.22
0.19
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
0.36
0.31
0.32
0.28
0.24
0.20
0.16
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
0.20
0.15
0.10
0.05
0.00
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
10
February 3, 2014
VIX Quicks: VIX @ 18.4, Feb to Jun VIX futures shift up ~0.2 to 1.4 vol pts.
Exhibit 14: The VVIX closed last Friday at 99.7, its highest level since Oct 2013.
VIX Futures
Date
24-Jan-14
31-Jan-14
1 wk Chg
1 wk % Chg
120
110
100
Apr-14
16.8
17.4
0.6
3.9%
90
19
18
80
18
70
18.4
17.6
18.1
17.4
17.7
17.4
16.8
16
Jan-13
Jul-13
Jan-14
18.2
17.3
17
Jul-12
18.2
17.7
17
60
Jan-12
17.9
16.2
16
16.2
15
31-Jan-14
15
24-Jan-14
14
VIX Spot
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Volatility (%)
21
19
16
1.4
Jun = 17.85
Apr = 17.4
Mar = 17.35
14
11
Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14
Source: Goldman Sachs Global Investment Research.
1.2
May = 17.65
0.6
0.4
0.3
0.2
Feb = 17.6
VIX = 18.41
VIX Spot
Feb-14
Mar-14
Apr-14
May-14
Jun-14
0.0
Jul-14
11
February 3, 2014
Hedging Landscape (95% Put Pricing): TWSE and S&P TSE 60 puts lowest cost globally
Exhibit 17: 1m 95% put pricing: TWSE the lowest globally.
Exhibit 18: 3m 95% put pricing: S&P TSE 60 the lowest globally.
Indicative pricing as of January 31, 2014. Pricing (% spot). Risk: the maximum loss
from buying a put is the upfront premium paid.
Indicative pricing as of January 31, 2014. Pricing (% spot). Risk: the maximum loss
from buying a put is the upfront premium paid.
TWSE
S&P/TSE 60
KOSPI 200
NIFTY
ASX 200
SMI
HSI
FTSE 100
DAX
Bovespa
Euro Stoxx 50
HSCEI
TOPIX
RDXUSD
Nikkei 225
RankOrderbyCost(%spot)
Country Indices
0.25
0.28
0.32
0.36
0.50
0.52
0.57
0.62
0.70
0.77
0.82
1.03
1.14
1.20
1.29
EWC
EWH
SPY
QQQ
EWT
EWJ
IWM
EWY
EEM
FXI
EWZ
Country ETFs
0.55
0.58
0.61
0.61
0.72
0.76
0.94
1.12
1.21
1.26
1.45
XLU
XLK
XLP
XLY
XLV
XLB
XLE
XLI
XLF
0.39
US Sector ETFs
US Sector ETFs
Country ETFs
Country Indices
RankOrderbyCost(%spot)
0.50
0.52
0.59
0.64
0.64
0.67
0.69
0.70
0.0
0.3
0.6
0.9
Cost of 1m 95% Puts (% of Spot)
1.2
1.5
S&P/TSE 60
KOSPI 200
TWSE
ASX 200
NIFTY
FTSE 100
DAX
HSI
SMI
Bovespa
Euro Stoxx 50
HSCEI
TOPIX
Nikkei 225
RDXUSD
1.03
1.15
1.17
1.43
1.74
1.78
1.85
1.89
1.98
1.99
2.26
2.69
2.82
3.04
3.18
EWC
SPY
QQQ
EWH
EWJ
EWT
IWM
EWY
EEM
FXI
EWZ
1.55
1.74
1.78
1.81
2.09
2.15
2.53
2.83
3.01
3.15
3.54
XLU
XLP
XLK
XLV
XLY
XLB
XLI
XLF
XLE
1.42
1.44
1.65
1.81
1.82
1.96
1.97
1.99
2.05
0
2
3
Cost of 3m 95% Puts (% of Spot)
12
February 3, 2014
Global Put Spreads: S&P TSE 60 and TWSE screen as the highest payout ratios
To screen for hedging candidates, we rank order the maximum payout ratios (maximum gain/entry cost) of 1m 97.5% /
92.5% put spreads, assuming each underlier settles below the lower put strike at expiration.
Risks: The maximum loss from buying a put spread is the upfront premium paid.
Exhibit 19: Maximum payout ratios for 1m and 3m 97.5% / 92.5% put spreads.
Payout ratios: maximum gain / entry price assuming each underlier settles below the lower put strike at expiration. Indicative pricing as of January 31, 2014.
Put Spreads 97.5% / 92.5%
Country Indices
S&PTSE60
TWSE
KOSPI200
NIFTY
ASX200
FTSE100
HangSeng
SMI
DAX
Bovespa
EuroStoxx50
HSCEI
TOPIX
Nikkei225
RDXUSD
Country ETFs
EWC(MSCICanada)
SPY(SPDRS&P500ETFTrust)
EWH(MSCIHongKong)
QQQ(PowerSharesQQQTrustSeries)
EWT(MSCITaiwan)
IWM(iSharesTrustRussell2000Index)
EWJ(MSCIJapan)
EEM(MSCIEmergingMarkets)
EWY(MSCIKorea)
FXI(iSharesFTSEChina25Index)
EWZ(MSCIBrazil)
US Sector ETFs
XLU(Utilities)
XLP(Staples)
XLK(Tech)
XLY(Discretionary)
XLV(Healthcare)
XLB(Materials)
XLF(Financials)
XLI(Industrials)
XLE(Energy)
Put Strikes
Put Spread
Index Level
Strikes (% of spot)
Strikes
97.5/92.5
765.9/726.6
97.5/92.5
8251/7827.9
97.5/92.5
246.6/233.9
97.5/92.5
5937.3/5632.8
97.5/92.5
5060.3/4800.8
97.5/92.5
6347.7/6022.2
97.5/92.5
21484.5/20382.8
97.5/92.5
7986.6/7577
97.5/92.5
9073.8/8608.5
97.5/92.5
46448/44066.1
97.5/92.5
2938.6/2787.9
97.5/92.5
9572.9/9082
97.5/92.5
1190.1/1129.1
97.5/92.5
14541.7/13795.9
97.5/92.5
1489.8/1413.4
Pricing by Term
Premium (% of spot)
M ax Payout Ratios
1m
3m
1m
3m
0.45
1.06
11.1
4.7
0.52
1.24
9.6
4.0
0.56
1.10
8.9
4.5
0.57
1.19
8.8
4.2
0.65
1.14
7.7
4.4
0.71
1.30
7.0
3.8
0.73
1.43
6.8
3.5
0.74
1.64
6.8
3.0
0.81
1.25
6.2
4.0
0.87
1.33
5.7
3.8
0.89
1.46
5.6
3.4
1.02
1.59
4.9
3.1
1.06
1.72
4.7
2.9
1.14
1.74
4.4
2.9
1.23
1.78
4.1
2.8
10
S&P/TSE 60
TWSE
9.6
KOSPI 200
8.9
NIFTY
8.8
ASX 200
7.7
FTSE
7.0
HSI
6.8
SMI
6.8
DAX
6.2
Bovespa
5.7
Euro Stoxx 50
5.6
HSCEI
4.9
TOPIX
Nikkei 225
RDXUSD
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
27.2/25.8
173.7/164.8
18.6/17.7
84.1/79.8
13.2/12.6
109.4/103.8
11.1/10.5
37.2/35.3
57.6/54.6
33.7/32
38.3/36.3
0.57
0.68
0.71
0.72
0.78
0.90
0.95
0.99
1.04
1.07
1.24
1.05
1.15
1.30
1.31
1.44
1.44
1.50
1.53
1.62
1.63
1.74
8.8
7.4
7.0
6.9
6.4
5.6
5.3
5.1
4.8
4.7
4.0
4.8
4.3
3.8
3.8
3.5
3.5
3.3
3.3
3.1
3.1
2.9
EWC
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
38.1/36.2
39.7/37.7
34/32.2
61.3/58.1
54.6/51.8
42.9/40.7
20.5/19.5
48.8/46.3
81.3/77.1
0.50
0.53
0.63
0.69
0.71
0.71
0.75
0.75
0.77
1.28
1.11
1.29
1.30
1.29
1.38
1.34
1.34
1.42
10.0
9.4
7.9
7.2
7.0
7.0
6.7
6.7
6.5
3.9
4.5
3.9
3.8
3.9
3.6
3.7
3.7
3.5
XLU
4.7
4.4
4.1
8.8
SPY
7.4
EWH
7.0
QQQ
6.9
EWT
6.4
IWM
5.6
EWJ
5.3
EEM
5.1
EWY
4.8
FXI
EWZ
4.7
4.0
10.0
XLP
9.4
XLK
7.9
XLY
XLV
XLB
XLF
XLI
XLE
12
11.1
7.2
7.0
7.0
6.7
6.7
6.5
13
February 3, 2014
US Volatility Landscape
Exhibit 20: 50-delta implied volatility comparison across US indices
Data as of January 31, 2014 market close.
S&P 500 (SPX)
Performance - 1 week
-1.5%
1m Vol: +1.1
1y %-ile: 96%
1m Vol: +2.6
1y %-ile: 95%
1m Vol: +0.9
1y %-ile: 96%
3m
6m
12m
24m
1m
3m
6m
12m
24m
1m
3m
6m
12m
24m
Current (31-Jan-14)
15.6
15.4
15.9
16.7
17.7
19.6
19.6
19.8
20.5
21.4
16.3
16.0
16.5
17.6
19.2
1.1
0.8
0.6
0.6
0.3
2.6
1.8
1.1
0.5
0.2
0.9
0.4
0.1
-0.1
0.1
4.6
3.0
2.3
1.5
0.6
4.9
3.2
2.1
1.0
0.5
3.5
1.9
1.3
0.6
-0.1
96%
90%
88%
83%
65%
95%
90%
86%
82%
69%
96%
86%
81%
60%
43%
Current (31-Jan-14)
12.8
10.6
10.6
11.4
12.2
16.6
14.7
14.7
15.2
16.1
15.9
12.4
12.2
12.7
14.2
1.3
0.5
0.2
0.1
0.0
2.7
0.8
0.4
0.2
0.0
2.1
0.9
0.4
0.2
0.1
3.1
0.2
0.8
0.3
0.1
3.0
0.1
1.0
0.6
0.1
6.7
0.5
1.0
0.2
0.2
73%
25%
12%
18%
10%
76%
45%
36%
54%
11%
89%
41%
17%
12%
10%
Current (31-Jan-14)
2.8
4.8
5.2
5.3
5.6
3.1
4.9
5.2
5.2
5.4
0.4
3.6
4.3
4.9
4.9
-0.2
0.3
0.4
0.5
0.3
-0.1
1.0
0.7
0.3
0.2
-1.2
-0.4
-0.2
-0.3
0.0
1.5
2.8
1.5
1.3
0.4
1.8
3.0
1.1
0.4
0.4
-3.2
1.4
0.3
0.4
-0.2
66%
96%
100%
95%
99%
69%
95%
98%
80%
98%
40%
88%
93%
95%
92%
Current (31-Jan-14)
0.35
0.37
0.38
0.37
0.34
0.31
0.34
0.33
0.33
0.33
0.24
0.26
0.25
0.26
0.26
-0.02
0.00
0.01
0.01
0.00
-0.04
-0.02
-0.01
0.00
-0.01
-0.01
-0.01
0.00
0.00
0.01
0.08
0.05
0.03
0.00
0.00
0.06
0.02
-0.01
-0.03
-0.03
0.05
0.02
0.01
0.01
0.01
86%
88%
83%
71%
31%
86%
90%
57%
53%
40%
58%
47%
18%
6%
8%
-1.0%
0.0%
-1.2%
-0.6%
1m Vol Stats
Implied Volatility
-0.5%
-0.4%
3m Vol Stats
SPX
RUT
NDX
SPX
RUT
NDX
16
20
16
15
20
16
17
16
15
12
96%
95%
88%
88%
90%
Impl Vol
(%)
1m
SPX
RUT
NDX
Realized Volatility
11
Implied vs Realized
86%
31-Jan
24-Jan
Chart Legend
17
24
15
15
15
14
13
14
15
16
15
16
18
17
17
16
16
22
20
20
19
20
18
16
20
17
21
20
21
19
17
20
20
20
22
14
11
14
12
12
10
1m
2m
3m
6m
9m 12m 24m
1m
2m
3m
6m
19
16
16
16
16
18
9m 12m 24m
1.5
20
18
15
15
16
17
16
17
17
58%
47%
24
86%
Skew
1y %-ile
19
69%
40%
Normalized Skew*
Term Structure
Impl - Rlzd
1y %-ile
66%
Rlzd Vol
(%)
13
SPX: 1.42
RUT: 1.33
NDX: 1.27
1.4
1.3
18
19
18
1.2
1.1
1.0
0.9
1m
2m
3m
6m
9m 12m 24m
0.8
31-Dec 5-Jan
14
February 3, 2014
1m Implied Volatility
Level
1w Chg
1y
%-ile
90%
4.8
16.7
+0.6
83%
5.3
+1.8
90%
4.9
20.5
+0.5
82%
5.2
16.0
+0.4
86%
3.6
17.6
-0.1
60%
4.9
18.6
+0.8
74%
4.4
18.8
-0.1
30%
2.5
15.0
+1.1
85%
5.2
15.7
+0.5
65%
3.5
Level
1w Chg
1y
%-ile
95%
2.8
15.4
+0.8
+2.6
95%
3.1
19.6
16.3
+0.9
96%
0.4
19.7
+1.7
90%
4.7
+2.2
90%
5.1
1m
3m
6m
12m
Level
1w Chg
1y
%-ile
S&P 500
12.8
10.6
10.6
11.4
15.6
+1.1
Russell 2000
16.6
14.7
14.7
15.2
19.6
Nasdaq 100
15.9
12.4
12.2
12.7
EuroStoxx 50
15.0
14.2
13.7
16.3
FTSE-100
10.3
9.8
10.1
12.2
15.4
Implied
Realized
Less
Rlzd
Index
Performance
3m Implied Volatility
Implied
Realized
Implied
Less
Rlzd
Realized
DAX
14.1
12.7
12.3
14.8
18.1
+1.9
91%
4.0
17.2
+1.0
81%
4.5
17.4
+0.5
52%
2.7
Nikkei 225
25.9
22.0
23.5
27.4
25.7
+3.5
68%
-0.1
24.0
+1.7
55%
2.0
22.3
+0.7
50%
-5.1
TOPIX
23.0
17.7
20.1
24.3
24.1
+3.3
52%
1.2
22.6
+1.6
34%
4.9
21.2
+0.6
36%
-3.0
KOSPI 200
14.5
13.4
12.5
13.7
14.3
+1.4
50%
-0.2
15.0
+0.8
47%
1.5
16.1
+0.4
27%
2.4
Hang Seng
12.2
11.7
11.8
13.8
16.6
+2.5
78%
4.4
17.6
+1.5
87%
6.0
18.5
+0.6
85%
4.7
MSCI EEM
22.0
19.0
19.7
19.3
23.0
+1.3
86%
1.0
23.0
+0.9
88%
4.0
22.5
+0.2
68%
3.2
Bovespa
16.8
17.7
20.1
20.7
21.4
-0.5
44%
4.6
20.6
-0.7
37%
2.9
20.5
-0.2
40%
-0.2
S&P/TSE 60
11.0
9.1
9.3
10.7
11.6
+1.1
59%
0.5
11.4
+0.3
25%
2.2
13.7
+0.1
19%
3.0
NIFTY
13.0
14.7
20.4
18.3
15.4
+0.4
32%
2.4
20.1
+2.7
79%
5.4
24.3
+0.8
90%
6.0
MSCI EAFE
10.2
10.2
10.6
12.4
16.2
+2.6
80%
6.1
15.8
+1.4
63%
5.6
17.2
+0.6
28%
10
20
30
40
50
5
S&P/TSE 60
KOSPI 200
S&P 500
FTSE-100
MSCI EAFE
DAX
Nasdaq 100
Hang Seng
Russell 2000
EuroStoxx 50
NIFTY
TOPIX
Bovespa
Nikkei 225
10
-0.6%
-0.5%
-2.3%
-0.9%
-3.1%
-3.5%
0.0%
-1.4%
-0.1%
-0.3%
-0.3%
-2.8%
10
20
30
40
-2.3%
-4%
50
-2%
0%
Bovespa
15
S&P/TSE 60
15
MSCI EEM
15
11
MSCI EEM
50
Nasdaq 100
16
15
KOSPI 200
16
40
EuroStoxx 50
17
DAX
18
S&P 500
19
TOPIX
20
20
Nikkei 225
20
FTSE-100
21
Hang Seng
23
MSCI EAFE
23
30
16%
14%
14%
12%
9% 9%
8%
10%
7% 7% 7%
8%
6% 5%
5%
6%
4% 4%
3% 2%
4%
2%
0%
-2%
-4%
-3%
-6%
NIFTY
24
25
20
-0.4%
-1.2%
4.8
0
30
Russell 2000
10
1w Return (%)
4.0
3.5
TOPIX
Nikkei 225
3.0
MSCI EAFE
Hang Seng
2.5
Russell 2000
DAX
FTSE-100
2.0
1.5
EuroStoxx 50
S&P/TSE 60
1.0
0.5
S&P 500
Nasdaq 100
NIFTY
0.0
Bovespa
-0.5
-1.0
-4.0%
MSCI EEM
KOSPI 200
-3.5%
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
15
February 3, 2014
0.90
Implied
0.80
Current
5y %-ile
1m ago
1m Chg
Min
25 %-ile
Median
75 %ile
Max
0.70
0.60
0.50
0.40
0.30
0.20
3m
0.41
0.14
0.34
0.07
0.30
0.44
0.49
0.54
0.74
Realized
12m
0.47
0.10
0.43
0.04
0.41
0.50
0.53
0.59
0.70
24m
0.51
0.12
0.51
0.01
0.46
0.53
0.55
0.60
0.71
1m
0.33
0.34
0.31
0.02
0.10
0.29
0.39
0.50
0.83
3m
0.28
0.05
0.29
-0.01
0.22
0.32
0.38
0.47
0.75
6m
0.28
0.02
0.25
0.02
0.24
0.33
0.38
0.54
0.70
12m
0.28
0.01
0.30
-0.01
0.27
0.37
0.46
0.53
0.61
24m
0.31
0.00
0.34
-0.03
0.31
0.46
0.49
0.51
0.57
0.9
6m
0.44
0.12
0.38
0.06
0.35
0.48
0.52
0.57
0.72
Nov-13
Aug-13
May-13
Feb-13
Nov-12
Aug-12
May-12
Feb-12
Nov-11
Aug-11
May-11
Feb-11
Aug-10
May-10
0.10
Nov-10
1m
0.37
0.24
0.29
0.09
0.21
0.38
0.45
0.53
0.79
0.8
0.7
Correlation
0.6
0.5
0.4
0.3
0.2
25-75 %-ile
Max
Min
1w Ago
Current
0.1
0.0
Imp Corr 1m
Imp Corr 3m
Imp Corr 6m
Real Corr 1m
Real Corr 3m
Real Corr 6m
16
February 3, 2014
Exhibit 23: One-month implied and realized correlation metrics across the S&P 500 and sector ETFs.
5y history through January 31, 2014 market close.
1m Realized Correlation, 1 month change
1m Realized Correlation
0.7
0.25
0.66
0.59
0.6
0.4
0.12
0.15
0.50
0.5
0.22
0.20
0.55
0.39
0.10
0.10
0.39
0.36
0.33
0.36
0.07
0.00
0.00
0.27
0.3
0.04
0.02
0.05
-0.05
0.2
-0.03
-0.10
0.1
-0.15
0.0
-0.20
SPX
XLU
XLF
XLI
XLE
XLB
XLE
lcorr
Rcorr
0.45
0.50
0.41
0.28
1.03
0.86
0.64
0.60
0.32
0.22
SPX
lcorr
Rcorr
Current
0.37
0.33
1 month ago 0.29
0.31
High (5y)
0.79
0.83
Median (5y)
0.45
0.39
Low (5y)
0.21
0.10
XLY
XLV
XLF
lcorr
Rcorr
0.59
0.59
0.52
0.62
0.95
0.94
0.66
0.58
0.45
0.19
XLP
SPX
XLK
XLK
lcorr
Rcorr
0.31
0.27
0.21
0.16
0.78
0.75
0.45
0.39
0.17
0.03
XLP
lcorr
Rcorr
0.46
0.36
0.37
0.50
0.71
0.85
0.44
0.40
0.23
0.07
XLE
XLY
lcorr
Rcorr
0.32
0.39
0.27
0.27
0.86
0.81
0.45
0.39
0.22
0.11
XLY
XLK
XLU
XLB
lcorr
Rcorr
0.44
0.39
0.32
0.39
0.90
0.89
0.57
0.54
0.28
0.10
lcorr
0.58
0.41
0.93
0.63
0.35
XLI
XLI
Rcorr
0.55
0.50
0.94
0.59
0.16
XLB
XLF
XLV
lcorr
Rcorr
0.42
0.36
0.30
0.51
0.77
0.80
0.43
0.40
0.22
0.08
-0.14
-0.14
XLV
XLP
XLU
lcorr
Rcorr
0.60
0.66
0.59
0.59
1.00
1.00
0.62
0.59
0.12
0.19
1.2
XLE
SPX
XLF
XLK
XLP
XLY
XLB
XLI
XLV
XLU
1.0
0.8
25-75 %-ile
Max
Min
1w Ago
Current
0.6
0.4
0.2
0.0
ICorr
RCorr
ICorr
RCorr
ICorr
RCorr
ICorr
RCorr
ICorr
RCorr
ICorr
RCorr
ICorr
RCorr
ICorr
RCorr
ICorr
RCorr
ICorr
RCorr
17
February 3, 2014
ETF risks
Exchange Traded Funds (ETFs) are redeemable only in specified units and only through a broker that is an authorized participant in
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risk of declining stock prices, which can cause investment losses.
Investors should consider the investment objectives, risks, and charges and expenses of an ETF carefully before investing.
Each ETF prospectus contains such information about the ETF, and it is recommended that investors review carefully such
prospectus before investing. A copy of the prospectus for all ETFs mentioned in this material can be obtained by investors
from their Goldman Sachs sales representative, or from the offices of Goldman, Sachs & Co., 85 Broad Street, New York, NY,
10004, Attn: Prospectus Dept. (1-212-902-1394). Prospectuses are also available from ETF distributors.
Goldman Sachs is an authorized participant in each ETF mentioned in this material and participates in the creation and redemption
of shares of each ETF mentioned in this material. Goldman Sachs, as an authorized participant or otherwise, acquires securities
from the issuers of the ETFs mentioned in this material for the purposes of resale. As of January 30, 2014, Goldman Sachs has the
following positions: EEM short, EWC long, EWH short, EWJ short, EWT short, EWW long, EWY long, EWZ short, FXI
long, XLB long, XLE long, XLF long, XLI long, XLK long, XLP long, XLU long, XLV long, XLY long. Professionals who
authored this material have no financial interest in any ETF mentioned in this material. One or more affiliates of Goldman Sachs is a
specialist, market maker or designated liquidity provider for the following ETFs: EEM, EWH, EWJ, EWT, EWW, EWY, EWZ, FXI, XLB,
XLF, XLP, XLU, XLV, XLY.
18
February 3, 2014
Disclosure Appendix
Reg AC
We, Krag Gregory, Ph.D. and Jose Gonzalo Rangel, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or
their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Disclosures
Option Specific Disclosures
Price target methodology: Please refer to the analysts previously published research for methodology and risks associated with equity price targets.
Pricing Disclosure: Option prices and volatility levels in this note are indicative only, and are based on our estimates of recent mid-market levels(unless otherwise noted). All prices and levels
exclude transaction costs unless otherwise stated.
General Options Risks The risks below and any other options risks mentioned in this research report pertain both to specific derivative trade recommendations mentioned and to discussion of
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with them the risks of those strategies.
Buying Options - Investors who buy call (put) options risk loss of the entire premium paid if the underlying security finishes below (above) the strike price at expiration. Investors who buy call or put
spreads also risk a maximum loss of the premium paid. The maximum gain on a long call or put spread is the difference between the strike prices, less the premium paid.
Selling Options - Investors who sell calls on securities they do not own risk unlimited loss of the security price less the strike price. Investors who sell covered calls (sell calls while owning the
underlying security) risk having to deliver the underlying security or pay the difference between the security price and the strike price, depending on whether the option is settled by physical delivery or
cash-settled. Investors who sell puts risk loss of the strike price less the premium received for selling the put. Investors who sell put or call spreads risk a maximum loss of the difference between the
strikes less the premium received, while their maximum gain is the premium received.
For options settled by physical delivery, the above risks assume the options buyer or seller, buys or sells the resulting securities at the settlement price on expiry.
Buy
Hold
Sell
Buy
Hold
Sell
Global
32%
54%
14%
53%
45%
36%
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19
February 3, 2014
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February 3, 2014
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21