Internal email discussing $14.3M XLF call spread trade by Amanda Ens and Jeffrey E.

From: Ens, Amanda Sent: 12/9/2016 4:03:45 PM To: jeffrey E. [jeevacation@gmail.com]; Richard Kah ie Subject: RE: Financials: buy XLF call spreads Attachments: image001.png Importance: — High Thank you Jeffrey. Notional is $14,285,000. I'll be back with final trade details. From: jeffrey E. [mailto:jeevacation@gmail.com] Sent: Friday, December 09, 2016 10:56 AM To: Ens, Amanda; Richard Kahn Subject: Re: Financials: buy XLF call spreads lets try, 250k premium On Fri, Dec 9, 2016 at 11:46 AM, Ens, Amanda EE wrote: We continue to see further upside in financials. e —_ Erika Najarian, BAML financials research analyst, just returned from a marketing trip. Bottom line: North American investors are very bullish the banks (long only AND hedge funds AND macro funds), but then conclude “I don’t own enough”. Note that high touch flows have slowed down significantly since Thanksgiving and where the buying has been concentrated in XLF (every client sector we have has been a better buyer of XLF). e = Client focus: 1) Regulation: Excitement, with the base case that it’s not getting worse. 2) Sentiment on rates: Cautiously bullish 3) Sentiment on growth: Also bullish 4) Sentiment on corporate tax rate cuts: buyside more bullish than sellside. In 1986, bank stocks exploded upward (outperforming the S&P) after Reagan’s tax reform bill passed the Senate; and 2) in 2003, the last time we saw personal tax cuts, loan growth industry wide accelerated in 2003 and 2004. e Biggest Pushback on owning sector at current levels: Too far too fast: BKX +18.00% post election: Valuation coming into question and Q4 has typically been a seasonally weak gtr. Bulls defend valuation on ‘18ests with potential upside to 2018 EPS from ~25-40% and stocks still cheap vs. discretionary. e Price action and sentiment keeps us constructive, we like the long and would expect US financials to benefit from any beta chase into year end. e Howto play it? Westill like “appearing” call spreads on XLF o Buy a6 month 105% call with a short 110% call that knock in if XLF trades above 115% during the life of the trade for 1.75% premium cost " Gross max payoff if knock-in is triggered: 2.8x (5.0%/1.75%) " Gross max payoff if knock-in is not triggered: 5.6x (9.9%/1.75%) — you have upside up to 114.9% HOUSE_OVERSIGHT_011280