<table><tr><th>From:</th><th>Ens, Amanda &lt;</th></tr><tr><td>Sent:</td><td>Friday, February 24, 2017 822 PM</td></tr><tr><td>To:</td><td>Jeffrey E.; Richard Kahn</td></tr><tr><td>Subject:</td><td>RE: Cheap hedge</td></tr></table>

I wanted to follow up on the best-of-put idea we dis=ussed a while back.

1. &=bsp; Markets are near all-time highs

2. &=bsp; Implied volatility is low (but tends to pick up in = sell-off, benefitting this trade)

3. &=bsp; Implied correlation is low (but tends to pick up in=a sell-off, benefitting this trade)

==> Best-of-puts thus look very attractive<=o:p>

Given high client interest recently in best-of-puts;here is a list of the top 10 lowest premium strategies for 6 month 95% bes=-of-puts struck on 3 sector ETF underlyings.

ETF underlyings + pre=ium: &nbs=;

XLB .1

XLU .1

XLV .1

0.93%

XLB .1

XLU .1

XLY .1

0.99%

XLB .1

XLK .1

XLU .1

<table><tr><th>1.00%

XLE .1

XLU .1

XLV .1

1.00%

XLU .1

XLV .1

XLY .1

1.01%

XLB .1

XLF .1

XLU .1

1.04%

XLK .1

XLU .1

XLV .1

1.04%

XLI .1

XLU .1

XLV .1

1.05%

XLE .1

XLK .1

XLU .1

1.06%

XLF .1</th></tr></table>

- XLU .1

XLV .1

1.07%

XLE .1

XLU .1

XLY .1

1.07%

XLB .1

XLE .1

XLU .1

1.09%

XLK .1

XLU .1

XLY .1

1.10%

XLF .1

XLU .1

XLY .1

1.11%

XLI .1

XLU .1

XLY .1

1.11%

Implied correlation (as measure by SPX vs its underl=ing components) has fallen to multi-year lows. This drop in correlation, a= well as the drop in implied volatility cheapens the cost of this option.<=:p>

Generally, as markets fall in value, realized<=u> correlation has historically picked up. Given this is a put structu=e, an uptick in realized correlation on the downside makes the put more va=uable.

Graph below shows the 1-month moving average correct=on based on price movements for XLB-XLU-XLY.=/span>

Source: Bloomberg

Regards,
Amanda

From: Ens, Ama=da
Sent: Thursday, December 15, 2016 9:22 AM
To: 'Jeffrey E.'; 'Richard Kahn'
Subject: Cheap hedge

While we are still const=uctive equities and see further upside potential, given the large recent m=ves and our binary view of the markets for 2017 (+20% bull case / -30%=bear case - see below), buying cheap tail protection to hedge a long equity portfolio is prudent. =/p>

=/p>

You can achieve signific=nt savings on a tail hedge by monetizing the low correlations between sect=rs that we have seen in the multi-year bull market. In a tail event, corre=ations generally move towards 1 as you know very well.

Buy a best-of-put on 3 sectors: tech, consumer=discretionary and utilities

* Underlying ETFs: XLK (Tech Selector Sector S=DR), XLY (Consumer Discretionary Select Sector SPDR), XLU (Utilities Selec= Sector SPDR)

• Your payoff is on the best performing of the=3 sectors

* 95% strike<=o:p>

o 6 months: 1.0% p=emium

o 1 year: 1.85% pr=mium

=/p>

This is - 64% savings compared to a 6 month SPX 95% p=t (2.75%) and a 1 year SPX 95% put (5.1%)

=/p>

We like the best-of-put =ecause all three sectors are near cycle or all-time highs and should all b= vulnerable in a large market pullback, especially in a tail event. Even u=ilities, a defensive sector, are less safe in our view given elevated valuations and crowding. Our utilities ana=yst sees 10% downside to the sector with the 10y at these levels (2.62% to=ay) and 16.7% downside at 3.0%.

=/p>

There is a high amount o= potential leverage on this trade — for example, on the 1 year best-=f-put, if the sectors were all down > 20%, you would have 8.1x payoff o= your premium (15%/1.85%).

=/p>

<http://rsch.baml.com/r?q=Xs2Bc=MU6pTCNQsJR2M5Jw&e=amanda.ens%40baml.com&h=1PXt6Q> US Equity Strategy Year Ahead: 2017 – the year ahead: Euphoria or fisca= fizzle? <http://rsch.baml.com/r?q=Xs2Bc6MU6pTCNQsJR2M5Jw&e=3Damanda.ens%40baml.com&h=1PXt6Q>

Savita Subramanian think= 2017 could be anything but normal — Subramanian notes that if the m=rket moves from skepticism to euphoria then the S&P 500 could trade as=high as 2700 in a bull case scenario. Meanwhile, applying typical (not extreme) recessionary returns to current S&P 500=levels yields a bear case scenario of 1600. Her base case is a year-end 20=7 S&P500 target of 2300.

10 Year Graph: XLY, XLIC, XLU

Source: Bloomberg

Regards,

Amanda

Amanda Ens

Director

Bank of America Merrill Lynch

Merrill Lynch, Pierce, Fenner & Smith Incorporat=d

One Bryant Park, 5th Floor, New York, NY 10036 =/o:p>

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