Volatility Regime In Pictures - MKM

8/19/2019 Volatility Regime In Pictures - MKM

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Jim Strugger, Managing Director, Derivatives Strategist

(203) 861-9060 [email protected]

Morning Derivatives March 9, 2016

Derivatives Strategy

The Volatility Regime in Pictures

Prior to the August 2015 shock, we had expected the low-volatility environment intact since the beginning of 2013 to continue for

another couple of years to approach the average of historical cycles. But the magnitude of that event, not just for U.S. equities but

across asset classes, was great enough to conclude that a transition into a high-volatility regime had begun. At the time, there was a

good amount of pushback since an inflection likely meant the return of a more challenging investment environment and end of the

6.5 year equity bull market.

Now when we reference being in a period of structurally elevated volatility, a typical response is along the lines of "Duh". After six

months of broad financial market turbulence, consensus has obviously shifted. But there is still plenty of intelligence to glean from the

derivatives markets about the eventual length of this regime, the timing and magnitude of future shocks and impact across asset classes.

With that in mind, we have attached an updated slide deck that attempts to lay out in linear fashion our view of things. It may not all

be self-explanatory, so please feel free to let us know of any questions or comments.

Flatter Kurtosis Mean Fatter Tails

Top: SPX return distribution December 2012 - August 2015

Bottom: SPX return distribution August 2015 - Present

Source: MKM Partners and Bloomberg

Headquarters: 300 First Stamford Place, 4th Floor East, Stamford, CT 06902

Member FINRA and SIPC. Additional Information on all of our research calls is available upon request.

See pages 32-33 for analyst certification and important disclosures.

This report is intended for [email protected]. Unauthorized redistribution of this report is prohibited.


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MKM Derivatives

Into the Thick of the High-Volat i l ity Regime

March 2016

ee pages 18-19 for Important Disclosures and Options

isk Statement & Disclosures.

Derivatives Strategy: The Volatility Regime in Pictures

March 9, 2016 2 MKM Partners LLC


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Long Cycles of Volatility

There have been seven distinct volatility regimes since the inception of VXO in the mid-1980s: three

high-volatility and four low-volatility

Average duration has been around 5 years but the low-volatility regime from late-2012 to August2015 measured just 2 ¾ years




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August Was the Trigger Since inception of VIX there have been five prior 40-magnitude VIX shocks, all during periods of

structurally elevated volatility

Prior to the August shock we had expected the low-volatility regime to extend toward the historicalaverage around 5 years




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U.S. Equities Are Not In a Vacuum Although a gap has recently opened between GFSI and spot VIX the two have tracked closely

historically

Hence we credit VIX with being representative of global cross-asset volatility




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It’s a Global High-Vol Regime GFSI measures risk via 41 sub-components across a range of asset classes and geographies

It inflected in earlier in 2015 actually preceding the shift in U.S. equity implied volatility




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A Global/Cross-Asset Regime




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Logical Given U.S. Economic Cycle Context

Over 3 U.S. cycles volatility inflections have tended to occur deep in economic expansions and at or

within a couple of years of the cycle peak

At 81 months in duration from the June 2009 recession trough, the current expansion is 14 monthsshy of the 95 month trough-to-peak average of the prior three cycles




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Beware the High-Volatility Regime

Low-volatility periods (1991-1997, 2003-2007, 2013-current) historically provide a positive backdrop

for equities with low implied correlation, flat skew and stable upward-sloping term structure

On average, SPX monthly returns are positive 67% of the time, while spot VIX averages 14. During2007-2013, these metrics were 53% and 24, respectively. Since 1990 the two bear markets and

every major equity market drawdown have occurred within high-volatility regimes




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A Critical Time For the Cyclicality of Volatility

The two transitions from low- to high-volatility regimes (96/97 & 07/08) produced very different

outcomes for U.S. equities

The former preceded the economic cycle and SPX peaks by four years and 3.5 years, respectively.Those same metrics in the late-00s were just 8 months and 3 months, respectively




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So What’s This Mean For U.S. Equities?

With a sample set of 2, it’s still not clear which outcome – the late 1990s or 2000s – is more likely

Either scenario suggests a higher-risk environment with deeper equity market pullbacks, but

whether or not a bear market is underway remains inconclusive from a volatility perspective




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Or Ugly Later

Implications are significant since the last two bear markets saw equities cascade lower for 1.5-2

years with ultimate damage in SPX averaging 53%




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Flatter Kurtosis, Fatter Tails




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Let the Oscillations Begin

Expect the VIX futures curve to cycle from trough to peak with the elevated spot floor in the 15-17

range

Every transition into a trough will test the high-volatility regime hypothesis




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What’s Up At the Long End of the Curve? In late-2007 there was a delayed reaction at the long-end of the VIX futures curve in recognizing the

regime shift

Now we’re a bit surprised to see longer-dated VIX futures below 2007-2012 trough levels




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Particularly Given Scarcity of Vol Sellers Many factors can explain shifts in net VIX futures positioning including trading against VIX-linked

ETPs

But lower longer-dated IV levels against seemingly less liquidity is curious as is aggressive declines inimplied correlation and vol of vol




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Vol of Vol and Implied Correlation Back to Troughs Along with levels at the back end of the VIX futures curve, vol of vol via VVIX has taken a curious dive

of late

VVIX doesn’t display the same discipline as implied volatility over cycles but this phenomena needs tobe watched closely




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Vol Lower, Equities Higher, For Now Relative to the six months of this high-vol regime the 30 ETPs we track in our Cross-Asset Monitor are

generally in the 50%-70% range for ranking of 3-month at-the-money implied volatility

We expect a shift leftward in the graph below which suggests plenty of potential energy to maintainrecent upward momentum…but only for a few more weeks




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Our 2016 Themes Three themes from our December 8, 2015 note “Looking Forward to 2016”

* Dust off the systematic hedging strategies

* Get re-acquainted with the concept of tail-risk

* Revisit strategies that extract elevated implied volatility such as covered call writing




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PS1 - ECB/Fed Ahead

Ahead of ECB meeting this week V2X/VIX spread is in 82nd percentile relative to the past 5 years

And SX5E/SPX ratio at multi-year low. Long directionally via April EWG calls outright




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PS2 – Gold/GLD – Long Via Upside Skew




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PS3 – MP Cycles Are Not Inherently Destabilizing But Fed tightening does historically trigger higher volatility around the event with the S&P 500 Index

declining 4.2% at the 3-month market before recovering to +3.5% after six months

And note that the 1999 tightening cycle occurred within a high-volatility regime




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PS4 - Screening For Events

Rank Ticker Name GICS Industry Group Spot ($)

Cons. PT

($)

Spot

Spread to

200D MA

(%)

Spot

Spread to

Cons. PT

(%)

90D ATM

IV %-ile

Rank (vs.

12M, %)

Normal.

30D

90%/110

% Skew

(%)

Normal.

60D

90%/110

% Skew

(%)

Normal.

30D/90D

Term

Struct.

(%)

Put/Call OI

Ratio

Total OI

30D

Change

(%)

Put/Call OI

Ratio 60D

Change

(bps)

Total Open

Interest

Days to

Expected

Earnings

Date1 LGF Lions Gate Entertainment Corp Media 23.14 30.40 (32.45) 31.37 93.20 8.94 7.05 0.17 0.23 75.84 (1.04) 59,144 73

2 ISIL Intersil Corp Semiconductors & Semiconductor 13.49 14.60 9.15 8.23 21.21 (17.63) (6.95) (11.80) 0.20 329.53 (0.31) 26,193 51

3 TAHO Tahoe Resources Inc Materials 9.88 11.48 4.85 16.18 65.13 (1.02) 0.24 (3.79) 0.06 56.31 (0.01) 21,467 2

4 PVG Pretium Resources Inc Materials 5.68 9.57 5.95 68.69 59.52 (2.84) (1.95) (7.77) 0.31 115.36 (0.01) 24,045 10

5 BOX Box Inc Software & Services 12.38 18.83 (10.74) 52.13 76.69 (4.74) (1.47) (8.19) 0.29 85.72 0.12 48,864 2

6 CRZO Carrizo Oil & Gas Inc Energy 26.52 34.96 (25.91) 31.83 84.31 11.22 8.01 (3.57) 0.42 (15.61) (0.64) 20,568 60

7 CENX Century Aluminum Co Materials 8.46 5.75 33.95 (32.03) 69.57 (9.26) (13.55) (5.37) 0.30 32.11 (0.25) 36,317 52

8 DYN Dynegy Inc Utilities 11.66 22.45 ( 43.48) 92.58 85.41 (3.95) (6.13) 3.30 0.14 111.82 (0.01) 43,085 58

9 GSAT Globalstar Inc Telecommunication Services 1.39 5.50 (22.26) 297.11 92.53 0.13 (2.41) 5.78 0.23 (7.70) (0.01) 60,202 59

10 TIVO TiVo Inc Software & Services 8.14 13.39 (11.12) 64.48 27.96 (3.93) (2.30) (0.40) 0.59 (11.24) (0.16) 34,193 78

11 ASNA Ascena Retail Group Inc Retailing 9.93 14.00 (17.36) 40.99 87.83 6.49 5.46 3.52 0.36 (47.39) (0.63) 102,369 85

12 CIEN Ciena Corp Technology Hardware & Equipmen 17.04 23.81 (23.86) 39.72 76.36 19.56 13.17 12.86 0.38 (6.35) (0.30) 96,166 87

13 BBRY BlackBerry Ltd Technology Hardware & Equipmen 8.09 8.00 3.96 (1.11) 45.58 2.29 0.75 (11.70) 0.43 (40.30) (0.06) 481,090 25

14 EGO Eldorado Gold Corp Materials 3.68 3.47 9.26 (5.82) 88.53 10.39 5.84 (0.49) 0.16 (33.15) (0.20) 69,982 16

15 TRP TransCanada Corp Energy 37.18 40.71 4.51 9.49 64.56 8.72 16.83 1.34 0.24 18.02 0.02 32,140 56

16 KGC Kinross Gold Corp Materials 3.07 2.74 50.16 (10.47) 79.52 (5.04) (1.57) (2.15) 0.52 1.20 (0.01) 314,061 6417 PAAS Pan American Silver Corp Materials 10.64 8.84 41.80 (16.86) 58.31 5.99 4.11 (0.84) 0.31 (4.58) (0.02) 81,012 65

18 DRII Diamond Resorts International Consumer Services 23.70 36.40 (10.18) 53.62 92.01 9.58 11.15 (13.92) 0.52 1,469.34 (0.60) 126,787 51

19 GRPN Groupon Inc Retailing 4.93 3.71 23.75 (24.74) 97.87 (4.72) 0.38 5.61 0.43 (19.66) 0.03 156,079 57

20 OLN Olin Corp Materials 16.52 19.33 (18.67) 17.03 85.56 12.53 7.25 2.87 0.40 (33.53) (1.62) 26,048 49

21 SGMS Scientific Games Corp Consumer Services 9.99 10.15 (9.22) 1.60 70.19 4.55 4.01 0.78 0.03 (19.00) (0.09) 296,506 59

22 SWHC Smith & Wesson Holding Corp Consumer Durables & Apparel 26.03 30.29 39.18 16.37 72.93 13.06 9.36 9.73 0.44 (7.02) 0.02 52,385 102

23 SHAK Shake Shack Inc Consumer Services 41.51 41.80 (17.08) 0.70 31.09 0.01 1.85 (8.65) 0.70 36.51 (0.01) 29,353 0

24 SUNE SunEdison Inc Semiconductors & Semiconductor 1.85 5.29 (85.41) 185.70 99.67 6.25 3.69 (13.87) 0.62 (31.98) 0.08 995,266 15

25 OI Owens-Illinois Inc Materials 15.00 17.11 (24.04) 14.07 85.89 9.78 9.95 3.54 0.39 182.16 (0.06) 20,702 56

n order of six-factor, weighted score; market cap > $5 00mm, options open interest > 20k, pharmaceutical/biotech industry group excluded)

vent Screen: 30D & 60D Skew, 90D/30D Term Structure, OI Put/Call Ratio and 30D Change, Total OI 30D Change




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Cross-Asset ETF Monitor

Symb Name Spot

1-Day

Change

(%)

5-Day

Change

(%)

6-Month

Change

(%)

YTD

Change

(%)

Relative to

200D MA

(%) 9-Day RSI

3-Month

ATM IV

(%)

3-Month

ATM IV

3-Month

90%/110

% Skew

Month

Term

Structure

3-Month

ATM IV

3-Month

90%/110

% Skew

Month

Term

Structure

1-Week OI

Change

(%)

1-Month

OI Change

(%)

Put/Call OI

Ratio

Put/Call OI

Ratio

Week Ago

Put/Call OI

Ratio

Month Ago

DIA SPDR Dow Jones Industrial Aver 167.62 (0.19) 1.8 2.5 (3.7) (2.5) 64.5 17.5 50.8 71.3 51.6 91.1 94.8 13.8 1.4 1.4 0.8 0.8 0.7

IWM iShares Russell 2000 ETF 104.70 0.44 3.0 (8.1) (7.0) (9.1) 70.3 21.2 53.2 57.1 50.0 88.3 89.2 18.8 3.9 (7.0) 2.5 2.6 2.1

QQQ Powershares QQQ Trust Series 1 105.24 (0.63) 2.6 1.3 (5.9) (2.6) 66.5 21.3 53.2 67.3 51.6 91.6 94.3 13.2 4.3 11.4 1.9 1.8 1.5

SPY SPDR S&P500 ETF Trust 197.29 (0.07) 2.1 1.0 (3.2) (2.6) 66.4 18.4 54.7 74.4 45.3 91.5 95.3 10.4 3.9 (5.5) 2.0 1.9 1.8

XLB Materials Select Sector SPDR F 42.30 (0.63) 3.3 (0.8) (2.6) (4.9) 68.1 22.4 53.9 27.2 53.2 91.7 73.0 11.3 2.2 19.9 2.2 2.3 3.3

XLE Energy Select Sector SPDR Fund 57.50 1.10 1.2 (11.1) (4.7) (13.3) 59.4 30.8 68.1 26.4 42.9 93.5 46.9 12.4 2.3 (4.6) 0.9 0.9 1.0

XLF Financial Select Sector SPDR F 21.84 0.48 4.6 (5.0) (8.4) (7.6) 63.9 23.0 76.8 74.4 35.0 95.8 95.6 7.1 9.6 11.7 1.6 2.2 2.2

XLI Industrial Select Sector SPDR 52.97 (0.34) 2.5 3.8 (0.1) (0.1) 70.6 19.1 56.3 79.9 46.1 90.5 95.4 10.8 (6.4) 129.1 2.0 1.9 2.0

XLK Technology Select Sector SPDR 41.98 (0.33) 2.7 5.3 (2.0) 0.2 68.5 20.1 53.9 37.4 53.2 91.9 87.4 15.3 (3.2) (0.9) 0.5 0.5 0.5

XLP Consumer Staples Select Sector 51.23 (0.01) (0.0) 9.1 1.5 4.1 61.5 14.8 46.1 10.6 51.6 89.5 64.6 35.9 13.8 43.9 2.5 2.1 2.3

XLU Utilities Select Sector SPDR F 45.58 0.33 (3.0) 10.3 5.3 4.6 48.1 16.8 65.0 53.9 29.5 86.1 76.2 40.1 (0.1) 17.5 1.6 1.5 1.3

XLV Health Care Select Sector SPDR 67.41 (0.25) 1.2 (3.8) (6.4) (5.5) 60.4 18.8 35.0 10.6 76.0 87.0 66.2 40.7 2.7 25.2 1.8 1.7 1.8

XLY Consumer Discretionary Select 75.98 (0.71) 2.4 1.8 (2.8) (1.2) 72.4 20.2 60.2 0.0 33.5 92.7 73.4 13.4 (0.9) 29.0 1.7 1.7 1.2

GDX Market Vectors Gold Miners ETF 18.89 2.93 (1.2) 38.6 37.6 22.0 55.9 50.2 77.6 5.1 40.6 95.8 11.8 30.6 2.7 40.5 0.6 0.6 0.6

GDXJ Market Vectors Junior Gold Min 25.42 3.18 0.7 29.5 32.3 19.7 57.9 51.6 71.3 51.6 28.0 74.2 65.4 40.7 0.4 32.1 0.7 0.7 0.9

IYR iShares U.S. Real Estate ETF 73.29 0.44 3.9 4.9 (2.4) (0.0) 72.3 17.8 51.6 83.9 54.7 85.7 96.6 23.6 18.6 24.8 1.8 2.0 2.2

OIH Market Vectors Oil Service ETF 24.23 1.67 3.3 (19.9) (8.4) (18.9) 63.1 40.2 72.8 84.7 57.1 94.9 93.7 13.9 (0.3) (13.4) 0.9 1.0 1.0

XHB SPDR S&P Homebuilders ETF 31.46 (0.38) 2.0 (12.9) (8.0) (10.1) 69.9 23.9 66.5 47.6 58.7 79.1 90.7 39.1 (1.2) (18.4) 1.0 0.9 0.5

XME SPDR S&P Metals & Mining ETF 17.46 6.50 10.7 (11.3) 16.8 (7.5) 75.8 39.8 62.6 2.0 68.9 93.3 2.6 38.2 (0.7) (17.5) 0.7 0.7 0.5

XOP SPDR S&P Oil & Gas Exploration 25.02 3.13 3.8 (31.8) (17.2) (31.7) 53.1 48.5 70.5 61.8 96.5 92.4 38.6 31.8 13.9 1.7 1.1 1.0 1.3

XRT SPDR S&P Retail ETF 43.68 (0.11) 2.4 (6.0) 1.0 (4.4) 79.7 22.7 64.2 69.7 54.7 93.7 88.4 24.0 29.1 23.0 3.9 2.9 3.6

EEM iShares MSCI Emerging Markets 31.39 0.86 3.7 (4.9) (2.5) (9.8) 66.0 26.7 64.2 58.7 41.3 93.5 91.0 11.6 4.5 6.0 1.3 1.3 1.4

EFA iShares MSCI EAFE ETF 54.89 0.42 2.7 (6.7) (6.5) (9.3) 61.2 19.7 58.7 82.3 43.7 92.0 96.6 11.8 3.9 (2.8) 1.8 1.8 1.6

EWA iShares MSCI Australia ETF 18.12 2.69 3.1 (0.4) (4.4) (6.3) 59.3 28.3 77.6 8.3 13.0 96.1 25.0 2.8 0.5 (1.4) 4.2 4.3 4.5

EWG iShares MSCI Germany ETF 23.99 (0.29) 2.5 (7.9) (8.4) (10.1) 59.8 23.7 76.0 61.0 15.4 95.1 48.6 3.8 2.3 51.2 0.5 0.5 0.9

EWJ iShares MSCI Japan ETF 11.27 1.03 3.0 (4.4) (7.1) (7.6) 58.3 22.6 68.9 85.4 29.5 90.0 97.4 9.2 (0.0) 39.8 0.9 0.9 1.0

EWY iShares MSCI South Korea Cappe 47.84 0.31 2.1 0.4 (3.7) (6.7) 59.3 24.5 72.8 84.7 50.0 94.4 97.3 10.5 (0.4) 22.2 2.1 2.2 1.4

EWZ iShares MSCI Brazil Capped ETF 21.60 2.27 5.9 (9.8) 4.4 (14.5) 66.7 43.5 57.9 69.7 74.4 91.5 73.3 31.8 6.1 2.6 0.8 0.9 0.9

FXI iShares China Large-Cap ETF 31.60 1.56 3.8 (8.9) (10.5) (17.7) 62.7 32.2 65.8 76.8 28.0 93.9 96.0 6.6 2.1 (12.4) 1.4 1.4 1.8

RSX Market Vectors Russia ETF 14.75 (0.27) 2.9 (7.1) 0.6 (9.3) 67.1 41.6 83.1 75.2 15.4 88.6 63.0 19.2 0.9 (15.6) 1.5 1.5 1.0

FXA CurrencyShares Australian Doll 72.39 1.60 0.5 2.8 (0.8) (0.7) 54.3 13.2 94.9 14.6 25.6 97.3 3.8 29.1 4.0 18.7 2.8 2.7 1.8

FXE CurrencyShares Euro Trust 105.96 0.02 (1.6) (3.8) (0.4) (2.2) 29.2 11.2 65.0 53.2 97.2 82.6 14.9 47.4 2.0 15.8 1.8 1.8 2.1

FXY CurrencyShares Japanese Yen Tr 85.10 0.52 (1.6) 5.5 5.5 6.0 50.5 12.5 91.7 7.5 12.2 87.1 1.4 4.6 8.8 47.5 2.7 2.4 1.5

UUP PowerShares DB US Dollar Index 25.55 (0.15) 1.0 2.0 (0.4) 1.0 65.4 9.3 61.0 65.0 98.0 80.4 46.7 48.4 (0.3) 15.2 0.6 0.6 0.6

GLD SPDR Gold Shares 118.59 0.81 0.8 9.2 16.9 9.2 60.4 19.9 90.9 6.7 9.1 88.2 1.1 26.3 0.9 34.5 0.4 0.4 0.3

SLV iShares Silver Trust 14.27 0.71 (1.7) 1.8 8.2 (0.6) 44.3 25.2 31.1 5.1 87.0 29.7 1.9 90.4 3.1 28.9 0.3 0.3 0.3

UNG United States Natural Gas Fund 6.03 (3.24) (7.6) (51.6) (30.5) (44.7) 28.2 48.6 74.4 54.7 37.4 86.5 60.4 31.0 13.4 60.4 0.5 0.5 0.7

USO United States Oil Fund LP 8.97 0.90 4.4 (40.6) (18.5) (36.8) 60.0 55.8 77.6 31.9 19.3 96.2 11.2 6.4 (1.6) (3.5) 0.7 0.7 0.7

HYG iShares iBoxx $ High Yield Cor 80.34 (0.70) 2.6 (6.5) (0.3) (4.8) 80.5 11.1 45.3 59.5 64.2 88.3 57.5 46.6 0.9 4.9 1.5 1.4 1.1

TLT iShares 20+ Year Treasury Bond 128.64 0.27 (2.0) 6.3 6.7 5.1 39.3 14.4 50.8 9.1 16.1 65.0 4.0 11.7 (0.7) 0.3 0.9 0.8 0.9

Vl

VXX iPATH S&P 500 VIX Short-Term F 23.11 0.13 (7.6) (15.9) 15.0 9.7 33.2 75.2 20.1 54.7 67.3 78.6 67.5 34.2 (0.7) (4.7) 1.4 1.4 1.3Source: MKM Partners & Bloomberg.

FI

03/02/16

ETF Performance Open Interest & Put/Call Ratio

U.S.Indices

Implied Volatility, Skew & Term Structure

U.S.Sectors

U.S.Groups

GlobalEquities

FX

Commod.

%-ile Rank Relative to 6-Months %-ile Rank Relative to 3-Years




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Important Disclosures

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appropriateness of an investment in any securities referred to herein based on the applicable legal, tax and accounting considerations and their own investment strategies. By virtue of this publication, neither the Firm

nor any of its employees shall be responsible for any investment decision. This information is intended for institutional clients only.

This communication may involve technical and/or event-driven analysis. Technical analysis solely examines the past trading history of a security to arrive at anticipated market fluctuations. Technical and event-driven

analyses do not consider the fundamentals of an underlying security and therefore offer an incomplete picture of the value or potential value of a security. Customers should not rely on technical or event-driven analysis

alone in making an investment decision, but should review all publicly available information regarding the security(ies), including, but not limited to, the fundamentals of the underlying security(ies) and other information

provided in any filings with the Securities Exchange Commission (SEC).

MKM Partners LLC has multiple analysts, and their views may differ from time to time. We encourage readers to call with any questions. This report may contain a short-term trading idea or recommendation that

highlights a specific near-term catalyst or event that is anticipated to have a short-term effect on the equity securities of the subject company(ies). Short-term trading ideas and recommendations are different from and

do not affect a stock's fundamental equity rating, which reflects a longer-term total return expectation. Short-term trading ideas and recommendations may be more or less positive than a stock's fundamental equity

rating. Any discussions of legal proceedings or issues are not and do not express any, legal conclusion, opinion or advice; investors should consult their own legal advisers as to issues of law relating to the subject

matter of this report.

Regarding the use of instant messages (IMs) and e-mail, you consent to the following: IMs or e-mail sent from or received by MKM Partners LLC employees are presumed to contain confidential or proprietaryinformation and are intended only for the designated recipient(s). If you are not the designated recipient, please inform the sender that you received this e-mail or IM in error and do not use, copy or disseminate its

contents. MKM Partners LLC and its analysts may from time to time make informal technical, fundamental and economic comments on IM and e-mail.

Additional information on all of our research calls is available upon request. MKM Par tners LLC is a U.S. registered broker-dealer and a member of FINRA and SIPC.

Risks: Risks associated with the achievement of revenue and earnings projections and price targets include, but are not limited to, unforeseen macroeconomic and/or industry events that weaken demand for the subject

company’s products or services, product obsolescence, changes in investor sentiment regarding the company or industry, the co mpany’s ability to retain or recruit competent personnel and market conditions. For a

complete discussion of risk factors that could affect the market price of the securities, refer to the most recent 10-Q or 10-K filed with the SEC.



https://research.mkmpartners.com/https://research.mkmpartners.com/


31/33

30

Option Risk Statements and Disclosures

The material in this presentation has been prepared by MKM Partners LLC, a U.S. registered broker-dealer. This material is provided for informational purposes only and is not an offer or solicitation of any

investments or investment services. Not all investments or investment services described are available in all U.S. states. This material is available only to institutional investors.

Expiration Process and Risks – Please note that the following items apply to the monthly index and equity option expiration process, and the resulting assignment or exercise of options that are in-the-

money:

1. Automatic exercise is limited: All expiring equity options closing in-the-money .01 or more will be eligible for automatic exercise per the contract terms of standardized options issued by the Options

Clearing Corporation (OCC). Index options will be exercised automatically if they are in-the-money by any amount.

2. You may be required to request exercise of valuable options: You should note that long equity options that are in-the-money less than .01, or out-of-the money, are not automatically exercised. These

options may be exercised, but you must specifically request exercise of these options by 4:00pm ET on the last day of trading before expiration.

3. Consider the risk of exercise or assignment: You should review your positions and consider whether your account can afford to take assignment (or exercise) based on your current equity. You may need

to close expiring positions prior to end of the market day in order to avoid risk, or in order to retain the profit from an in-the-money position prior to expiration. In addition, please consider the possibility thatshort options positions may be exercised against you by the long holder, even if the option is out-of-the money.

4. Spreads face unique risks during expiration: Expiring spreads may require action if the long leg is out-of-the money less than .01, or out-of-the-money while the short leg is in-the-money. Although we use

our best efforts to exercise offsetting, expiring long options, the customer is ultimately responsible for taking action on such positions and for the risks associated with any unhedged spread leg expiring in-

the-money. In the event that you do not wish to exercise an expiring long leg, you must notify us by 4:00pm ET in order to prevent the possibility that we will exercise this long position on your behalf.

5. The assignment process: According to the policy and practice of our clearing agents, assignments are distributed on a random basis among all holders of eligible options among the accounts carried on

their books. Please contact us if you need more information about this process. For any questions relating to the exercise process or regarding expiring options, please contact our Trading Desk at 203-861-

9060.

Spread Trade Risk Disclosure – Option traders must understand the additional risks associated with this type of trading. While it is generally accepted that spread trading may reduce the risk of loss of the

trading of the outright purchase of a standardized option contract, an investor/trader must understand that the risk reduction can lead to other risks.

1. Early exercise and assignment can create risk and loss. Spreads are subject to early exercise or assignment that can remove the very protection that the investor/trader sought. This can lead to margin

calls and greater losses than anticipated when the trade was entered.

2. Execution of spread orders is “not held” and discretionary. Spreads are not standardized contracts as are exchange -traded puts and calls. Spreads are the combination of standardized put and callcontracts. There is no spread market in securities that is subject to such benchmarks such as “time and sales” or “NBBO” (Nat ional Best Bid/Offer), and therefore the “market” cannot be “held” to a price.

3. Spreads are executed differently from “legged” orders. Spreads are used by strategists as examples of risk protection, pro fit enhancement and as a basis for results and return on investments. However,

these strategies assume that the trade can actually be executed as a spread, when market forces may and can make the actual execution impossible. Spreads are bona- fide trades and not “legged” or

“paired” individual separate trades. For example: option prices on cross-markets are misleading for the spread trader. An option may be offered on one exchange and bid on another exchange that can lead

the trader to believe that their spread trade should be filed, when, in fact, the bids and offers must be on the same exchange as all bona- fide spreads are routed on “one” exchange.

4. Spreads are entered on a single exchange and are acted upon by a market maker. Spreads are executed at the discretion of a market maker and, when cancelled or filled, require that the market maker

take manual action and require manual reporting at times. Delays for reporting of fills and cancels may create additional risks in fast or changing markets.

5. Options involve risk and are not suitable for all investors. Please read the Characteristics and Risks of Standardized Options available at http://www.optionsclearing.com/publications/risks/riskchap1.jsp

prior to opening an account.

6. Past performance is no guarantee of future returns.

Member: FINRA & SIPC



http://www.optionsclearing.com/publications/risks/riskchap1.jsphttp://www.optionsclearing.com/publications/risks/riskchap1.jsp


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Distribution of Ratings

MKM Partners, Equity Research

Investment Banking

Serv./Past 12 Mos.

Rating Count Percent Count Percent

BUY [BUY] 67 49.26 0 0

HOLD [NEUTRAL] 63 46.32 0 0

SELL [SELL] 6 4.41 0 0

Explanation of MKM Partners Rating System

“Buy” Security is expected to appreciate 15% or more on an absolute basis in the next 12 months.

“Neutral” Security is not expected to significantly appreciate or depreciate in value in the next 12 months.

“Sell” Security is expected to depreciate 15% or more on an absolute basis in the next 12 months.

Analyst Certification

I, Jim Strugger, certify that the views expressed in this research report about securities and issuers accurately reflect my personal views.

I further certify that there has not been, is not, and will not be direct or indirect compensation from MKM Partners LLC or the subject

company(ies) related to the specific recommendations or views in this report.

Important Disclosures

Jim Strugger (including his/her/their household) does not have a financial interest in the securities of the subject company(ies). The Firm

has not engaged in transactions with issuers identified in the report. MKM Partners LLC does not make a market in the subject company(ies).

The subject company(ies) is(are) not currently, nor for the past 12 months was(were), a client(s) of the Firm. The research analyst does

not serve as an officer, director or advisory board member of the company(ies) and receives no compensation from it(them).

This report has been prepared by MKM Partners LLC. It does not constitute an offer or solicitation of any transaction in any securities

referred to herein. Any recommendation contained in this report may not be suitable for all investors. Although the information contained

herein has been obtained from recognized services, issuer reports or communications, or other services and sources believed to be reliable,

its accuracy or completeness cannot be guaranteed. This report may contain links to third-party websites, and MKM Partners LLC is not

responsible for their content or any linked content contained therein. Such content is not part of this report and is not incorporated by

reference into this report. The inclusion of a link in this report does not imply any endorsement by or affiliation with MKM Partners LLC;

access to these links is at your own risk.

Any opinions, estimates or projections expressed herein may assume some economic, industry and political considerations and constitute

current opinions, at the time of issuance, that are subject to change. Any quoted price is as of the last trading session unless otherwise

noted. Foreign currency rates of exchange may adversely affect the value, price or income of any security or financial instrument mentioned

in this report. Investors in such securities and instruments, including ADRs, effectively assume currency risk.

This information is being furnished to you for informational purposes only, and on the condition that it will not form a primary basis for any

investment decision. Investors must make their own determination of the appropriateness of an investment in any securities referred to

herein based on the applicable legal, tax and accounting considerations and their own investment strategies. By virtue of this publication,

neither the Firm nor any of its employees shall be responsible for any investment decision. This information is intended for institutionalclients only.

This communication may involve technical and/or event-driven analysis. Technical analysis solely examines the past trading history of

a security to arrive at anticipated market fluctuations. Technical and event-driven analyses do not consider the fundamentals of an

underlying security and therefore offer an incomplete picture of the value or potential value of a security. Customers should not rely on

technical or event-driven analysis alone in making an investment decision, but should review all publicly available information regarding

the security(ies), including, but not limited to, the fundamentals of the underlying security(ies) and other information provided in any

filings with the Securities Exchange Commission (SEC).

MKM Partners LLC has multiple analysts, and their views may differ from time to time. We encourage readers to call with any questions. This

report may contain a short-term trading idea or recommendation that highlights a specific near-term catalyst or event that is anticipated to

have a short-term effect on the equity securities of the subject company(ies). Short-term trading ideas and recommendations are different

from and do not affect a stock's fundamental equity rating, which reflects a longer-term total return expectation. Short-term trading ideas

and recommendations may be more or less positive than a stock's fundamental equity rating. Any discussions of legal proceedings or




33/33

issues are not and do not express any, legal conclusion, opinion or advice; investors should consult their own legal advisers as to issues

of law relating to the subject matter of this report.

Regarding the use of instant messages (IMs) and e-mail, you consent to the following: IMs or e-mail sent from or received by MKM Partners

LLC employees are presumed to contain confidential or proprietary information and are intended only for the designated recipient(s).

If you are not the designated recipient, please inform the sender that you received this e-mail or IM in error and do not use, copy or

disseminate its contents. MKM Partners LLC and its analysts may from time to time make informal technical, fundamental and economic

comments on IM and e-mail.Additional information on all of our research calls is available upon request. MKM Partners LLC is a U.S. registered broker-dealer and a

member of FINRA and SIPC.

OptionRisk Statements and Disclosures

The material in this presentation has been prepared by MKM Partners LLC, a U.S. registered broker-dealer. This material is provided for

informational purposes only and is not an offer or solicitation of any investments or investment services. Not all investments or investment

services described are available in all U.S. states. This material is available only to institutional investors.

Expiration Process and Risks – Please note that the following items apply to the monthly index and equity option expiration process, and

the resulting assignment or exercise of options that are in-the-money:

1. Automatic exercise is limited: All expiring equity options closing in-the-money .01 or more will be eligible for automatic exercise per the

contract terms of standardized options issued by the Options Clearing Corporation (OCC). Index options will be exercised automatically

if they are in-the-money by any amount.2. You may be required to request exercise of valuable options: You should note that long equity options that are in-the-money less than .01,

or out-of-the money, are not automatically exercised. These options may be exercised, but you must specifically request exercise of these

options by 4:00pm ET on the last day of trading before expiration.

3. Consider the risk of exercise or assignment: You should review your positions and consider whether your account can afford to take

assignment (or exercise) based on your current equity. You may need to close expiring positions prior to end of the market day in order

to avoid risk, or in order to retain the profit from an in-the-money position prior to expiration. In addition, please consider the possibility

that short options positions may be exercised against you by the long holder, even if the option is out-of-the money.

4. Spreads face unique risks during expiration: Expiring spreads may require action if the long leg is out-of-the money less than .01, or

out-of-the-money while the short leg is in-the-money. Although we use our best efforts to exercise offsetting, expiring long options, the

customer is ultimately responsible for taking action on such positions and for the risks associated with any unhedged spread leg expiring

in-the-money. In the event that you do not wish to exercise an expiring long leg, you must notify us by 4:00pm ET in order to prevent the

possibility that we will exercise this long position on your behalf.5. The assignment process: According to the policy and practice of our clearing agents, assignments are distributed on a random basis

among all holders of eligible options among the accounts carried on their books. Please contact us if you need more information about this

process. For any questions relating to the exercise process or regarding expiring options, please contact our Trading Desk at 203-861-9060.

Spread Trade Risk Disclosure – Option traders must understand the additional risks associated with this type of trading. While it is generally

accepted that spread trading may reduce the risk of loss of the trading of the outright purchase of a standardized option contract, an

investor/trader must understand that the risk reduction can lead to other risks.

1. Early exercise and assignment can create risk and loss. Spreads are subject to early exercise or assignment that can remove the very

protection that the investor/trader sought. This can lead to margin calls and greater losses than anticipated when the trade was entered.

2. Execution of spread orders is “not held” and discretionary. Spreads are not standardized contracts as are exchange-traded puts and

calls. Spreads are the combination of standardized put and call contracts. There is no spread market in securities that is subject to such

benchmarks such as “time and sales” or “NBBO” (National Best Bid/Offer), and therefore the “market” cannot be “held” to a price.

3. Spreads are executed differently from “legged” orders. Spreads are used by strategists as examples of risk protection, profit enhancementand as a basis for results and return on investments. However, these strategies assume that the trade can actually be executed as a

spread, when market forces may and can make the actual execution impossible. Spreads are bona-fide trades and not “legged” or “paired”

individual separate trades. For example: option prices on cross-markets are misleading for the spread trader. An option may be offered on

one exchange and bid on another exchange that can lead the trader to believe that their spread trade should be filed, when, in fact, the

bids and offers must be on the same exchange as all bona-fide spreads are routed on “one” exchange.

4. Spreads are entered on a single exchange and are acted upon by a market maker. Spreads are executed at the discretion of a market

maker and, when cancelled or filled, require that the market maker take manual action and require manual reporting at times. Delays for

reporting of fills and cancels may create additional risks in fast or changing markets.

5. Options involve risk and are not suitable for all investors. Please read the Characteristics and Risks of Standardized Options available at

http://www.optionsclearing.com/publications/risks/riskchap1.jsp prior to opening an account.

6. Past performance is no guarantee of future returns.

http://www.optionsclearing.com/publications/risks/riskchap1.jsphttp://www.optionsclearing.com/publications/risks/riskchap1.jsp

Documents

Volatility Regime In Pictures - MKM