EFTA02390638.pdf

From: Richard Kahn Sent: Tuesday, August 1, 2017 4:27 PM To: jeffrey E. Cc: Paul Barrett Subject: Fwd: FX Option Themes One-Pager Richard Kahn HBRK Associates Inc. 575 =exington Avenue 4th Floor New York. NY 10022 Begin forwarded message: From: =/b>"Atlas, Andrew 5" Subject: =/b>FX Option Themes =ne-Pager Date: =/b>August 1, 2017 at 12:22:58 PM =DT To: =/b>"Richard Kahn Andrew S. Atlas First Vice President Equity Sales/Middle Markets =roup Financial =dvisor Morgan Stanley Wealth Management 1290 Avenue of the Americas, 12th Floor I New York, =Y 10104 1 EFTA_R1_01416220 EFTA02390638 Theme=1: USD Extends Drop - Aug 1st Products • The week started =ith mild risk-off tone on North Korea headlines, but market quickly =hrugged off the concerns with risk rallied across the board. Political =ncertainty in Washington continues to drive the USD weakness with the =UR benefiting most, decoupling from rates and yields differentials • Sentiment on EUR =s still positive with narratives focused on good EMU economic prints, =eeper reform momentum and fiscal integration • It is worth =oting that position for USD short remains crowded (see latest =SFX =osition Tracker) and there is still potential risk of position =riven adjustment (i) &nb=p; 2-month EURUSD 1.2000 / 1.2200 call spread =0.40% of EUR notional 4.1x =ay-out ratio (ii) &nb=p; 2-month EURUSD 1.2000 call with RKO at 1.24 5/0.21% of EUR notional Vanilla offered at 0.78% (iii) 2-month USDJPY 109.00 put with RKO at =05.50 a/0.17% of USD notional Vanilla offered at =.00% &nb=p; = Ref: EURUSD 1.1800, USDJPY =10.52 Theme 2: CHF Under =potlight — Aug 1st Products • CHF has been under spotlight after =ordan's comments on plan of balance sheet expansion. EURCHF =ent 3.5% higher and option pricing gets very bid with 1-month =mplied vol moved from 4.5 to 7.5 in short order and risk reversals =lipping to favor EURCHF calls for the first time since =014. The liquidity in CHF options has =een extremely limited in recent years as market makers have less =apability to warehouse risk and investors tend to avoid selling =ptionality in EURCHF. Given the wide spread, structures with =imited/neutral vega exposure looks appealing (i) &nb=p; 3-month EURCHF 1.1550 / 1.19001x2 ratio call =pread / 0.33% of EUR notional 8.9x max pay-out ratio when spot expires =t 1.1900 (ii) &nb=p; 3-month EURCHF 1.1550 / 1.1850 / 1.2150 lx2xl =all fly a/ 0.37% of EUR notional 2 EFTA_R1_014 16221 EFTA02390639 6.8x =ax pay-out ratio when spot expires at 1.1850 &nb=p; = Ref: EURCHF 1.1405 Theme=3: EM FX Holds Well - Aug 1st Products EM assets =ontinued the rally as core government bond yields remain soft. MS =esearch believes the rally could extend further (link), noting that Inflows into EM fixed income =unds remain strong registering the 26th consecutive week of =nflows (i) &nb=p; Long 3-month USDMXN 17.50 put, short 18.81 =all a/ Zero cost &nb=p; 1-year USDTRY 3.50 put, RKO at 3.30 a/0.13% USD notional Vanilla offered at =.06% &nb=p; = Ref: USDMXN 17.77, =SDTRY 3.5225 Other Option =deas* (i) &nb=p; Long CNH vs. SGD Idea from our Asian HE =ales: SGD has outperformed most Asian currencies over the past month on =he broad-based USD selloff, but with SNEER getting to elevated levels =n its trading band, the time to fade could be nigh. RMB on the other =and remains - 2% weaker against the CFETS basket compared to the start =f the year, while policy makers would likely welcome more strength. To =xpress the idea, investor could short SGD / long CNH 6mth forward or =uy USDCNH put spread vs. selling USDSGD put spread to play the China =atch-up story while SGD gains will likely be stifled by policy =onstraint (ii) &nb=p; EUR Tail Risk Hedge With short USD position =ecoming crowded and ECB tapering getting priced in, probably it is time =ooking at Euro zone tail risk hedge ideas to prepare for the upcoming =he Italian election. Current low vol low skew environment is in favor =f outright optionality. Long forward volatility via FVA is also a good =lternative to take advantage of the flat curve *Please contact fxstructuring@morganstanley.com for more information Important Information & Qualifications 3 EFTA_R1_01416222 EFTA02390640 For access to relevant disclosures, please =isit: https://ln.matrix.ms.com/f16/i3/webapp/shared/export/disclosure=/correlationid/baffa032-331a-40af-aldb- 15028aafb3fc.html THIS IS SALES AND TRADING COMMENTARY =REPARED FOR INSTITUTIONAL INVESTORS; it is NOT a research report; tax, =egal, financial, or accounting advice; or an official confirm. The =iews of the author may differ from others at MS (including MS =esearch). MS may engage in conflicting activities -- including =rincipal trading before or after sending these views -- market making, =ending, and the provision of investment banking or other services =elated to instruments/issuers mentioned. No investment decision should =e made in reliance on this material, which is condensed and incomplete; =oes not include all risk factors or other matters that may be material; =oes not take into account your investment objectives, financial =onditions, or needs; and IS NOT A PERSONAL RECOMMENDATION OR INVESTMENT =DVICE or a basis to consider MS to be a fiduciary or municipal or other =ype of advisor. It constitutes an invitation to consider entering into =erivatives transactions under CTFC Rules 1.71 and 23.605 (where =pplicable) but is not a binding offer to buy or sell any instrument or =nter into any transaction. It is based upon sources believed to be =eliable (but no representation of accuracy or completeness is made) and =s likely to change without notice. Any price levels are indicative only =nd not intended for use by third parties. Subject to additional terms =t http://www.morganstanley.com/disclaimers/productspecific.htmlq=pan>. By communicating with MS, you acknowledge =nderstanding of, and consent to, the foregoing and to the voice =ecording of telephone conversations with personnel of Morgan =tanley. The information in this material =as prepared by sales, trading, or other non-research personnel of =organ Stanley for institutional investors. This is not a research =eport, and unless otherwise indicated, the views herein (if any) are =he author's and may differ from those of our Research =epartment or others in the Firm. This material is not independent of =he interests of our trading and other activities, which may conflict =ith your interests. We may deal in any of the markets, issuers, or =nstruments mentioned herein before or after providing this information, =s principal, market maker, or liquidity provider and may also seek to =dvise issuers or other market participants. Where you provide us with information relating to an order, =nquiry, or potential transaction, we may use that information to =acilitate execution and in managing our market making and hedging =ctivities. This material does not provide investment advice or offer =ax, regulatory, accounting, or legal advice. By submitting this =ocument to you, Morgan Stanley is not your fiduciary, municipal, or any =ther type of advisor. This material is not based on a consideration of any =ndividual client circumstances and thus should not be considered a =ecommendation to any recipient or group of recipients. This material is =n invitation to consider entering into derivatives transactions under =.S. Commodity Exchange Act §§1.71 and 23.605 (where =pplicable) but is not a binding offer to buy or sell any instrument or =nter into any transaction. Unless =therwise specifically indicated, all information in these materials =ith respect to any third party entity not affiliated with Morgan =tanley has been provided by, and is the sole responsibility of, =uch third party and has not been independently verified by Morgan =tanley, our affiliates or any other independent third party. We =ake no express or implied representation or warranty with respect to =he accuracy or completeness of this material, nor will we undertake to =rovide updated information or notify recipients when information =ontained herein becomes stale. Any =rices contained herein are indicative only and should not be relied =pon for valuation or for any use with third parties. All financial information is taken from company disclosures =nd presentations (including 10Q, 10K and 8K filings and other public =nnouncements), unless otherwise noted. Any securities referred to =n this material may not have been 4 EFTA_R1_01416223 EFTA02390641 registered under the U.S. Securities =ct of 1933, as amended and, if not, may not be offered or sold absent =n exemption therefrom. In relation to any member state of the European =conomic Area, a prospectus may not have been published pursuant to =easures implementing the Prospectus Directive (2003/71/EC) and any =ecurities referred to herein may not be offered in circumstances that =ould require such publication. Recipients are required to comply with =ny legal or contractual restrictions on their purchase, holding, sale, =xercise of rights, or performance of obligations under any instrument =r otherwise applicable to any transaction. In addition, a secondary =arket may not exist for certain of the instruments referenced =erein. Options are not for everyone. Before purchasing or =riting options, investors should understand the nature and extent of =heir rights and obligations and be aware of the risks involved, =ncluding the risks pertaining to the business and financial condition =f the issuer and the underlying instrument. A secondary market =ay not exist for certain of these instruments. For Morgan Stanley =ustomers who are purchasing or writing exchange-traded options, please =eview the publication 'Characteristics and Risks of =tandardized Options,' which is available from your account =epresentative. The value of and income from investments may vary =ecause of, among other things, changes in interest rates, foreign =xchange rates, default rates, prepayment rates, securities, prices of =nstruments or securities, market indexes, operational, or financial =onditions of companies or other factors. There may be time limitations =n the exercise of options or other rights in instruments (or related =erivatives) transactions. Past performance is not necessarily a guide =o future performance. Estimates of future performance are based on =ssumptions that may not be realized. Actual events may differ from =hose assumed, and changes to any assumptions may have a material impact =n any projections or estimates. Other events not taken into account may =ccur and may significantly affect any projections or estimates. Certain =ssumptions may have been made for modeling purposes only to simplify =he presentation or calculation of any projections or estimates, and =organ Stanley does not represent that any such assumptions will reflect =ctual future events or that all assumptions have been considered or =tated. Accordingly, there can be no assurance that any hypothetical =stimated returns or projections will be realized or that actual returns =r performance results will not materially differ. Some of the =nformation contained in this document may be aggregated data of =ransactions executed by Morgan Stanley that has been compiled so as not =o identify the underlying transactions of any particular customer. This information is not intended to be provided to and may =ot be used by any person or entity in any jurisdiction where the =rovision or use thereof would be contrary to applicable laws, rules, or =egulations. This communication is directed to and meant for =ophisticated investors. Specifically, institutional investors in the =.5 and those persons who are eligible counterparties or professional =lients in EMEA. It must not be re-distributed to or relied upon by =etail clients. This information is being disseminated in Hong =ong by Morgan Stanley Asia Limited and is intended for professional =nvestors (as defined in the Securities and Futures Ordinance) and is =ot directed at the public of Hong Kong. This information is being =isseminated in Singapore by Morgan Stanley Asia (Singapore) Pte. This =nformation has not been registered as a prospectus with the Monetary =uthority of Singapore. Accordingly, this information and any other =ocument or material in connection with the offer or sale, or invitation =or subscription or purchase, of this security may not be circulated or =istributed, nor may this security be offered or sold, or be made the =ubject of an invitation for subscription or purchase, whether directly =r indirectly, to persons in Singapore other than (i) to an =nstitutional investor under Section 274 of the Securities and Futures =ct, Chapter 289 of Singapore (the "SFA"), (ii) to a =elevant person pursuant to Section 275(1) of the SFA, or any person =ursuant to Section 275(1A) of the SFA, and in accordance with the =onditions, specified in Section 275 of the SFA or (iii) otherwise =ursuant to, and in accordance with the conditions of, any other =pplicable provision of the SFA. Any offering of this security in =ingapore would be through Morgan Stanley Asia (Singapore) Pte, an =ntity regulated by the Monetary Authority of Singapore. This information is being disseminated in Japan by Morgan =tanley MUFG Securities Co., Ltd. Any securities referred to herein may =ot have been and/or will not be registered under the Financial =nstruments Exchange Law of Japan (Law No. 25 of 1948, as amended, =ereinafter referred to as the "Financial Instruments Exchange =aw of Japan"). Such securities may not be offered, sold, or =ransferred, directly or indirectly, to or for the benefit of any =esident of Japan 5 EFTA_R1_01416224 EFTA02390642 unless pursuant to an exemption from the registration =equirements of and otherwise in compliance with the Financial =nstruments Exchange Law and other relevant laws and regulations of =apan. As used in this paragraph, "resident of Japan" =eans any person resident in Japan, including any corporation or other =ntity organized or engaged in business under the laws of Japan. If you =eside in Japan, please contact Morgan Stanley MUFF Securities for =urther details at +613.5424.5000. In respect of any notes, please =ote that the solicitation for newly-issued or secondary securities =each as described in Paragraph 2, Article 4 of the Financial =nstruments and Exchange Law of Japan (Law No.25 of 1948, as amended, =he "FIEL")) in relation =o such notes constitutes either a "Qualified=Institutional Investor ("QII") only private =lacement" or a "QII only secondary distribution" =each as described in Paragraph 1, Article 23-13 of the FIEL). =isclosure regarding any such solicitation, as is otherwise prescribed =n Paragraph 1, Article 4 of the FIEL, has not been made in relation to =uch notes. Such notes may only be transferred to QIIs. This information is distributed in Australia by Morgan =tanley Australia Limited A.B.N. 67 003 734 576, holder of Australian =inancial services license No. 233742, which accepts responsibility for =ts contents, and arranges for it to be provided to potential =lients. In Australia, this report, and any access to it, is intended =nly for "wholesale clients" within the meaning of the Australian =orporations Act. For additional information, research reports, and =mportant disclosures see https://secure.ms.com/servlet/ds. The trademarks and service marks contained =erein are the property of their respective owners. Third-party data =roviders make no warranties or representations of any kind relating to =he accuracy, completeness, or timeliness of the data they provide and =hall not have liability for any damages of any kind relating to such =ata. This material may not be redistributed without the prior =ritten consent of Morgan Stanley. Hao =ang Morgan Stanley I Fixed =ncome Division 20 Bank Street I Canary =hart Floor 02 London, E14 =AD Phone: +44 20 =425-5848 Hao.Wang@morganstanley.com Be carbon conscious. Please consider our environment before =rinting this email. NOTICE: Morgan Stanley is not =cting as a municipal advisor and the opinions or views contained herein =re not intended to be, and do not constitute, advice within the meaning =f Section 975 of the Dodd-Frank Wall Street Reform and Consumer =rotection Act. If you have received this communication in error, please =estroy all electronic and paper copies and notify the sender =mmediately. Mistransmission is not intended to waive confidentiality or =rivilege. Morgan Stanley reserves the right, to the extent permitted =nder applicable law, to monitor electronic communications. This message =s subject to terms available at the following link: http://www.morganstanley.com/disclaimers If you =annot access these links, please notify us by reply message and we will =end the contents to you. By communicating with Morgan Stanley you =onsent to the foregoing and to the voice recording of conversations =ith personnel of Morgan Stanley. 6 EFTA_R1_01416225 EFTA02390643