EFTA01196244.pdf

From: Tazia Smith cj To: jeeyacation(a2,gmail.com Cc: Paul Morris , Vinit Sahni , Nay Gupta , Vahe Stepanian Subject: Fw: Key themes & trades Date: Thu, 25 Sep 2014 18:18:12 +0000 Inline-Images: unnamed; unnamed(1); unnamed(2); unnamed(3); unnamed(4); unnamed(5) Happy New Year Jeffrey - Below please find key themes and trade ideas from Vinit and Nav's DB KCP Global Capital Markets team. In short: - Continue to press euro short - Long Indian rupee vs. euro - Sell S&P puts to buy 4x S&P calls - Long Nikkei via risk reversals [could do rr on your DXJJ Please see below and we will refresh any trades that resonate with live levels. Regards, Tazia Forwarded by Tazia Smithidbidbcom on 09/2512014 01:32 PM -- Key themes: • Divergence in monetary policy between the Fed & Bank of England on the one hand and ECB & Bank of Japan on the other • Continued capital inflows into Asian countries where financial conditions are easing (eg, Japan) and/or structural reforms are being implemented (eg, India) • US recovery - buying into dips as US anchors global growth EURUSD continues to break down -- if you're looking to reload: • Trade: A 1y EURUSD 1.25 put financed by selling the 1.30 call has zero net premium (spot ref: 1.2740) • • EURUSD has broken below 1.28 during the last 24 hours • With US data continuing to firm, the market is recalibrating when the Fed will deliver hikes - earlier rather than later • On the other hand, given the ECB's stated determination to spur inflation in the Eurozone, full-blown QE looks likely next year This chart shows the correlation between EURUSD and the spread between EUR and US interest rates (yellow) EFTA01196244 EUR BGN Curncy 95) Save As 9Q Actions - 94 Edit- 94 Table Line art 09/25/2013 09/25 2014 H) Compare Mov. 1D 3D 1 61.1 TED 1Y Sv Max Daily I (,":1 Security/Study M Event 0 + Track ". Annotate News Zoom 1.4000x0.10 O Reset 1.3800 1.3600 1.3200 1.3000 1.2800 ■ EUR MN Curncy - Last Price (R1) 1.2716 ■ EUSA2 CMPN Curncy - USSW2 Curncy (R2) -0.5955 Jan Feb Mar Apr May Jun Jul Aug Sep 2014 Source: Bloomberg 25-Sep-2014 EURINR lower as a combined play on continued inflows into India and ECB activism: • Trade: A 6m EURINR 78 put (at-the-money spot) financed by selling the 83 call has zero net premium (spot ref: 77.95. forward: 80.50) • • With the Modi government showing decisiveness in pursuing its reform agenda, capital inflows into India look likely to continue for the foreseeable future • Indian equities are at all-time highs and the entry point is not very attractive • The rupee also embeds carry of 7%/year, cheapening risk reversals Chart of EURINR spot EFTA01196245 EURINR BGN Curn 95) Save As 9' Actions - 97) Edit - 98) Table Line Chart 09 28/2009 09/25/2014 Last Price MEM Line M — 1:i Compare 1.1a.. A'.9s I I INto Lower Chart n_ 1D 3D 111 6M YID 1.1. 5Y 'lax D3ily V f gr: Security/Study M Event 0 4- Track L Annotate 'L. News O, Zoom 1• Last Price 77.9904 90 T High on 08/28/13 91.8093 -0- Average 69.9526 • 1 Low on 05/18/10 55.6350 85 80 77.9904 75 70 65 60 55 009 2010 2011 2012 2013 2014 Source: Bloomberg 25-Sep-2014 S&P 500 Put options dislocated relative to Call options • Trade: A 6m 110% calls financed by 6m 90% puts in a ratio of 4 calls bought per put sold has zero net premium (spot ref: 1998) • • Very high demand for SPX puts makes it possible to buy multiple calls for each call sold • Across major indices, the ratio of calls-to-puts is highest for US equities • EFTA01196246 Skew -axis vs ATM vol x-axis is stretched GRAB <Menu> to Return Buy .SPXSKEA U Ind Sett SPX 31 1 10^0 VOL Regression AnifysTs41 Ca:a Fe: Last Price CI 141 Last Price • 09/24/2013 it 09/24/2014 12 Regression E Corr. 120 Non-Pararr Regression • Log Lag 0 g Local CCY 6I YTD lY 27 51 Max . . Daily • IIMMItGRESSION STATISTS Y=-0.059X-4.381 Linear Raw BETA -0.059 •• ALPHA(Intercept) -4.381 -4 - I •ti?• R- 2(Correlation- 2) 0.017 44•40 .. _.- )• R(Correlation) -0.131 •0•Et...• Std Dev of Error 0.534 Y ..SPXSKEW U Index et 4. i ce*, t • Std Error of ALPHA 0.359 - it • ..e? *4 • • A. - 4,. t• , - • ,.1.1 Std Error of BETA 0.028 -s - .-•. 4,,rs,„ 4..".• • ._,a • ..k. -2.096 -_ aim ♦• 4.s.,♦ • t-Test Significance 0.037 al .. n. %.• .4 • ...t t h I. • a •• • • -4,‘ • .4. •4•)••• • • 4" • v ' •,*a 4P • -.1r • Last T-Value -2.030 ••-• • _• - a 4s • ,* $7* i • Last P-Value 0.022 • 4e •ta • • -6- II Number of Points 10.3 . • • • - I • 4' . -7 j l . . i i . . . . 1 1 . 1 I I . I . . I . . I . I I . .". . i .". .". I . . 9 10 11 12 13 14 15 16 17 18 X=SPX3M100VOLBVOLIndex Australia 61 2 9777 8600 Brazil 5511 3048 4500 Europe 44 20 7330 7500 Germany 49 69 9204 1210 Hong Kong 852 2977 cnn0 Japan 81 3 3201 8900 Singapore 65 6212 1000 U.S. 1 212 318 2000 Copyright 2014 Bloomberg Finance SN 622439 H235-1719-1 24-Sep-14 18:26:34 BST GMT+1:00 Source: Bloomberg 24-Sep-2014 Renewed interest in Japanese equities ahead of GPIF re-allocation and policy momentum • Trade: A 6m 110% call financed by 6m 90% put has zero net premium (spot ref: 16374) • • Investors are waiting for the giant Japanese pension funds to re-allocate away from bonds to equities • The Abe administration is looking for additional ways to stimulate the economy • Nikkei vols are high and skew is poor — no easy way to get into the trade, best to do calls vs puts 1-to-1 struck around major technical levels • EFTA01196247 Chart showing NKY history with strike of 90% put highlighted Source: Bloomberg 25-Sep-2014 Past performance is not a reliable indicator of future results. 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