EFTA01388938.pdf

this could be an interesting trade on ZAR without really getting directional exposure to it. The payout is defined as a Samount per point of correlation. So that means selling the correlation at 80% for SlOk per point of correlation is a max loss of $200k. Let me know if you'd like to discuss. Martin DB FX Trade Idea EURZAR-USDZAR Cor !at n Swap irade Idea • Sell 6m EURZAR-USDZAR correlation swap at 80% (USD payout) • Sell 1y EURZAR-USDZAR correlation swap at 80.5% (USD payout) Rationale • EURZAR-USDZAR implied correlations are close to the highest levels since 2007 (see graph 1) • This has been driven by ZAR implied volatilities trading at their highest levels relative to EURUSD volatility since the financial crisis (see graph 2) • Since 2007 the highest 6m realized correlation is 94% and the lowest is 41%. For ly the highest is 93% and the lowest is 48%. Looking at shorter dated metrics, 3m realized correlation has fallen from recent highs to now sit close to current strikes (see graphs 3 & 4) • The correlation swap provides a limited loss way of fading elevated ZAR volatilities and buying cheap EURUSD volatility, which could perform in the event of any Eurozone concerns such as the Italian election Graphs Graph 1: EURZAR-USDZAR implied correlation at highs Graph 2: ZAR vols elevated compared to EMUS() vols 100% 90% •01•04 RD% • 70% - 60% 50% • 44% — EuRZAR-uSOZAR 6m 'frond corr •—••• EuRt$50601ZAR ly molted 'nilKral EUICALUSOZAR lv inwied art — EURUSO•USOWI 1Y IMO NIKI veal gain 40% -20 2007 2003 2009 2020 2011 2012 2013 2014 2015 2016 2017 200; 2003 2009 2020 2011 2012 2013 2014 MI5 2016 2017 Graph 3: 6m realized correlation vs. strike Graph 4: 1y realized correlation vs. strike CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0092923 CONFIDENTIAL SDNY_GM_00239107 EFTA01388938