EFTA01451414.pdf

Date: 01/10/2014 08:21 AM Subject: $Y [I] Classification: For internal use only Long SY Call Options. We like long expiry options to benefit from the present dislocation between interest rates and volatility Deutsche Bank FX Strategists are calling for USDJPY of 115 by year-end 2014, and 120 by year-end 2015. See DB FX Blueprint published 1/9/14, and note that #2 of the top 10 themes of 2014 (p. 5-6) revolves around extended weakness in the Japanese Yen vs. USD. Consider a l0year expiry $Y call option struck at 85 (spot fx 105, forward fx 77.70). Price 4.7% of USD notional This option has four notable characteristics • If $Y stays at these levels the option decays positively by approx 15-20% per year • If $Y trades 90.00 at any time (arguably a scenario in which the option is no longer wanted) the option "knocks-out" and becomes worthless. While $Y might decline to 90, our quantitative analysis indicates the probability of such a decline is significantly (double?) overpriced by the options market • The premium of the option is quite sensitive to moves in $Y spot - which is atypical for a I 0year option. This also results from the knockout feature. This means if $Y moves quickly by 5% the option increases / decreases in value by almost half, so If SY rises to 110 or 115 the option can easily be unwound to monetize the profit • The option costs roughly 1/3rd compared to the vanilla 85 strike call • Maximum loss is premium paid Nay Gupta Managing Director CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0107999 CONFIDENTIAL SONY GM_00254183 EFTA01451414