EFTA01468498.pdf

Subject: Fw: Reminder: send idea to JE on JPY [I] From: Tazia Smith ‹ > Date: Wed, 23 Apr 2014 09:29:19 -0400 To: Paul Morris < Classification: For internal use only FYI... Forwarded by Tazia Smith/db/dbcom on 04/23/2014 09:28 AM From: Tazia Smith/db/- dbcom To: Vinit Sahni/db/dbcom@DBEMEA, Nay Gupta/db/- dbcom@dbemea, Date: 04/23/2014 09:28 AM Subject: Re: Reminder: send idea to JE on JPY [I] Classification: For internal use only I don't think he "needs to buy" anything. I just don't want May 1 to come and we didn't update him on his expiring option and our thoughts about the $Y cross. Did you send him your thoughts below? As much as I am on the same page with your thoughts here, JE does not want to hear it from me. Please send. EFTA01468498  From: Vinit Sahni/db/- dbcom@DBEMEA To: Nav Gupta/db/- dbcom@dbemea, Cc: Tazia Smith/db/- dbcom@dbamericas Date: 04/22/2014 01:49 PM Subject: Re: Reminder: send idea to JE on JPY [I] Agree with u nay. The next jpy leg probably a usd play as the boj will step in may wait till summer or end summer. Too early for a usd trade to materialise. If the markets continue to rally we could see 103 handle and if payrolls strong a possible breakout Vinit On 22 Apr 2014, at 18:13, "Nav Gupta" a wrote: Classification: For internal use only Conclusion If there is a short term catalyst for $Y to breakout in either direction I don't see it. If anything, BoJ looks like it will disappoint speculators in July by not adding any additional QE. Background EFTA01468499  $Y is near the middle of a 5mth 101-105 range Implied vol is low, 1w 6.3, lm 7.3, 3m 7.5, 6m, 8.4, ly 9.25, but appropriate as $Y hardly moves. The Government is pressuring the BoJ to add additional QE in July. Over the weekend the Government shook up the investment committee members of the governments pension fund (GPIF) with the hope of stimulating pension allocation from bonds into equities. Pricing i priced a dozen option variations. Still, the are only two ways I'd play $Y right now (this view hasnt changed in 2014) 1. wait for some new catalyst to emerge then buy spot or call options after its moved 1-2 points, rather than paying decay while it goes nowhere 2. buy a lOy call with an ITM american style knockout which a) has some gamma and b) decays positively if nothing happens je indicated lOy options arent his thing. also, the option he bought has already decayed. he can rescue whats left (40-50k) or let it expire. given where spot is relative to his strike, personally id let it run off and hope $Y rallies 50-100pips over the next 9 days then lock in the gain. If he really needs to buy something i suggest a 3mth OTM call - thats the sweet spot in the vol curve. Vols are too low for me to suggest selling OTM puts. Nav Tazia Smith---22/04/2014 16:57:06---Classification: For internal use only From: Tazia Smith/db/- dbcom@DBAMERICAS To: Nav Gupta/db/- dbcom@DBEMEA, Date: 22/04/2014 16:57 EFTA01468500  Subject: Reminder: send idea to JE on JPY [I] Classification: For internal use only Tazia Smith---04/21/2014 03:03:44 PM---Classification: For internal use only thx ;) From: Tazia Smith/db/- dbcom To: Nav Gupta/db/- dbcom@DBEMEA, Cc: Paul Morris/db/dbcom@DBAMERICAS, Vinit Sahni/db/- dbcom@dbemea Date: 04/21/2014 03:03 PM Subject Re: Jeffrey - latest prices with suggested sizes - Nav [I] Classification: For internal use only thx ;) <0.1720.gif> EFTA01468501  Tazia Smith Director I Key Client Partners - US DB Securities Inc Deutsche Asset & Wealth Management 345 Park Avenue, 10154-0004 New York, NY, USA Email <0.2162.gif> Nav Gupta---04/21/2014 03:02:55 PM---I'm sure he would but of course. Let's chat after I price some ideas up tmrw From: Nav Gupta/db/- dbcom@DBEMEA To: Tazia Smith/db/- dbcom@dbamericas, Cc: Paul Morris/db/dbcom@dbamericas, Vinit Sahni/db/- dbcom@dbemea Date: 04/21/2014 03:02 PM Subject Re: Jeffrey - latest prices with suggested sizes - Nav [I] I'm sure he would but of course. Let's chat after I price some ideas up tmrw EFTA01468502  On 21 Apr 2014, at 19:59, "Tazia Smith" e > wrote: Classification: For internal use only great - i agree with (2). can you highlight to him? he won't want to hear it from me, just you! <0.220.gif> Tazia Smith Director I Key Client Partners - US DB Securities Inc Deutsche Asset & Wealth Management -0004 New York, NY, USA Email <0.C62.gif> Nav Gupta---04/21/2014 02:43:46 PM---The qns are 1) do we think usdjpy can exceed 103 his approx break even from current valuation before maylst and 2) is it worth From: Nav Gupta/db/- dbcom@DBEMEA To: Tazia Smith/db/- dbcom@dbamericas, Cc: Vinit Sahni/db/dbcom@dbemea, Paul Morris/db/- dbcom@dbamericas Date: 04/21/2014 02:43 PM Subject Re: Jeffrey - latest prices with suggested sizes - Nav [I] EFTA01468503  The qns are 1) do we think usdjpy can exceed 103 his approx break even from current valuation before maylst and 2) is it worth spending more money on the same bet by rolling his option longer. 1). Spot is 102.60. 103 isn't far away. In the next month I don't see any obvious triggers for usdjpy to drop or rise a lot. For 50k I'd keep it and if usdjpy rises to 103.25 or 103.50 sell 100pct of the delta to lock in p&l 2) is it worth spending more. The japan story seems to be losing momentum. This has shown up in nky but not usdjpy. I'd be inclined to find a longer term cheaper way to bet. I'll take a look tomorrow to see what looks smart now that vols are a lot lower. Best Nav On 21 Apr 2014, at 19:33, "Tazia Smith" wrote: Classification: For internal use only Nay - thoughts on his 102.50 strike USDcJPYp that matures 5/1...-46k left of value (down —143k). Maintain short yen view (this was his, he thought it was going to 110 within the time frame). Do you roll it here and save what's left in the premium? <0.25A.gif> EFTA01468504  <0.50CC.gif> Tazia Smith Director I Key Client Partners - US DB Securities Inc Deutsche Asset & Wealth Management 345 Park Avenue, 10154-0004 New Email <0.5B0E.gif> Paul Morris---04/21/2014 01:59:09 PM---Classification: For internal use only thx pls stay on him, hope you're all well, From: Paul Morris/db/- dbcom@DBAMERICAS To: Nav Gupta/db/- dbcom@DBEMEA, Cc: Date: 04/21/2014 01:59 PM Subject: Re: Jeffrey - latest prices with suggested sizes - Nav [I] Classification: For internal use only EFTA01468505  thx pls stay on him, hope you're all weld, Paul Morris Managing Director Deutsche Bank Private Bank 345 Park Avenue, 27th Floor New York. NY 10154 Fro Nav Gupta/db/- dbcom@DBEMEA M: To: [email protected], Cc: Joseph Cothron/db/dbcom@DBAMERICAS, Tazia Smith/db/- dbcom@DBAMERICAS, Paul Morris/db/dbcom@DBAMERICAS, Vinit Sahni/db/- dbcom@DBEMEA Dat 04/15/2014 07:46 AM e: Sub Jeffrey - latest prices with suggested sizes - Nav [C] jec t: Classification: Confidential EFTA01468506  Jeffrey, Updated prices and proposed sizes. 1. Buy ley BTP (March2024). lOy yield is 5bp lower today. I still like eur2mm here 3.125% YTM and suggest work a soft order to add eurl.5mm at 3.25%, eur1.5mm 3.35%. 2. EURUSD spot FX is 1.3802 from 1.3827 yesterday. Suggest buying 2week vanilla 1.40c at 5-6c in EUR 50mm notional (cost EUR25-30k) 3. position for a stronger dollar by buying ly 5% OTM SPOT EURUSD binary puts at 21% of payout. suggest do half (eur500k payout costing 0.21*500k) now, and the other half when spot 139-140 4. nationwide coco currently 6.42% offered. I suggest scaling in £2mm on an order at 6.5% and £2mm on order at 6.75% thanks Nav From: Nav Gupta/db/- dbcom To: [email protected], Cc: Vinit Sahni/db/dbcom@DBEMEA, Paul Morris/db/dbcom@DBAMERICAS, Tazia Smith/db/- dbcom@DBAMERICAS Date: 14/04/2014 EFTA01468507 18:17 Subje Jeffrey - 4 trades I like - Nav [C] ct: Classification: Confidential Hi Jeffrey, There hasn't been much I've really liked recently. Here are four trades - 3 I like right now and 1 for now or soon. 1) BUY ley BTPS @ 3.16% - This is a 3-6mth 'buy the rumour sell the fact' tactical trade to position for ECB QE (now) The ECB is preparing both itself and markets for QE - Its senior board members have stepped up public comments over the past 48hrs. This is the clearest sign so far QE could happen and why I am writing to you now. Ideally ECB wants to buy ABS from small to medium sized European companies but the outstanding available is relatively small so it will likely buy Eurozone Government Bonds. The spread between Italian BTPs and German Bunds has tightened significantly past 18months but old metrics of value make no sense in EFTA01468508  Europe because they rely on history when there was no QE. While It's hard to get excited about lOy BTPs yielding 3.16% (164bp over 10Y German Bunds) I'd still have 5-10mm ley BTPs in my portfolio both for the duration and spread compression potential. I prefer lOy over 5y because the recent nearly parallel spread compression has left 5slOs steep relative to 0-5s.. 3 reasons i like this trade: i) macro investors view ECB QE as a second bite at the cherry. Everyone I talk to wants European risk assets having seen QE in the US. ii) ECB QE is probably still 3-6mths away which will keep credit bid. This will be a buy the rumour sell the fact trade iii) Credit has been bulletproof during the recent risk selloff because a) ECB QE expectations, b) G3 rate hikes are being pushed into the future while cash has nowhere else to go. This price action is telling - as and when equities recover i think credit continues to tighten Yields of 10Y Italy, lOy Germany and the Yield Spread <0.7E0C.gif> 2) Tactically position for higher EURUSD - 2 week view (now) BUY EUR50mm 2week expiry 1.40 strike European Style EURUSD Calls @ 6bp (EUR30,000) EFTA01468509  This is a low cost contrarian short term tactical call. Most investors myself included are bullish USD in the medium term (see trade 3) but in the very short term I see EURUSD higher because: i) Despite ECB preparing the markets for QE, the price action of EURUSD (broadly unchanged) has been quite bullish compared to what one would expect ii) Speculators don't appear long EURUSD to us. Majority are short or flat. iii) implied volatility is 5.25% (offer for 2week options) which is very very low historically. So this is a penny option, highly convex, pain trade bet against other speculators betting on QE If my view is wrong 6bp is lost. If I'm right I'd plan to exit in a week making 4-6x Scenario Analysis - Premium in bp of EUR notional <2.350A.gif>« 4bp is mid mkt, offer is 6bp 3) Position for a Stronger Dollar - lyear view (now or soon) Buy ly expiry European style digital binary option on EURUSD struck 5% below spot @ 21% of payout (which i think is too cheap) Current strike (spot - 5%) would be 1.3120 At expiry if EURUSD has fallen by more than 5% from current levels the option payout is EUR1mm. Upfront EFTA01468510  premium is EUR210k. The option is liquid and can be unwound at any time. i) Yellen has done a poor job of communicating the Fed's thinking but its increasingly clear the Fed will brake later than usual ii) Betting on higher US interest rates in the rates market isn't cost effective because the forward curve is already pricing in higher rates iii) The Dollar hasn't appreciated yet because short rates in the US haven't risen meaningfully iv) THE KEY POINT - FX volatility is very low in currency pairs like EURUSD where central bank policy on each side is increasingly diverging. The low vol makes this bet inexpensive to put on. v) Because FX vol is so low betting now or soon with a one year time horizon costs very little. id rather be early than late here vi) i prefer ly expiry because this trade could take 6-12mths to play out 1Y EURUSD VOL: Low - but then again most most vols are What I like about EURUSD is that central bank policy on each side is diverging <2.49F0.gif> This Table shows mid-market premiums (in % of notional) as spot and time change. <4.47E4.gif> 19.5 is mid (offer is 21) EFTA01468511  4) Scale into £4mm Nationwide (UK Building Society) 6.875% perpetual which yields 6.4% in GBP and is likely to be called in 5years European Bank AT1 HyBrid Bonds (aka CoCo's) have rallied significantly. We were unable to get the BBVA issue at the right levels. A very similar bond which has rallied 30bp less than the BBVA is the Nationwide (UK Building Society) 6.875% perpetual which currently yields 6.4% and is likely to be called in 5years time. It has a tierl capital trigger of 7% and current tierl capital ratio is 13% which is fair margin. The Nationwide one I'm suggesting today is rated Fitch/S&P BB+, its parent is Fitch/S&P rated single-A The BBVA bond we tried to buy earlier is rated Fitch BB-, its parent is S&P rated BBB- I suggest scaling £2mm at 6.5% and £2mm at 6.75%. Transaction cost is 6bp from mid. Yield to call of Nationwide 6.875% perpetual ISIN XS1043181269 <5.215E.gif> Tazia for any execution, Q&A to me. Best, Nav <6.26FC.gif> Nav Gupta Managing Director EFTA01468512  Deutsche Bank AG, Filiale London Deutsche Asset & Wealth Management 105/108 Old Broad St (Pinners Hall), EC2N lEN London United Kingdom Email Any proposed ideas are being delivered to you by the DeAWM Key Client Partners ("KCP") London desk for discussion purposes only, and do not create any legally binding obligation on the part of Deutsche Bank AG and / or its affiliates ("DB"). These ideas are for the consideration of the intended recipients of this mail only. The KCP London desk does not provide investment advice. All intended recipients are Professional investors (as defined by MiFID), who understand the strategy, characteristics and risks associated with any ideas proposed herein and will be able to evaluate it independently. All trades on proposed ideas shall be subject to the relevant internal approvals prior to execution. <6.33A6.gif> EFTA01468513