EURUSD call option prices Spot 1.382 Spot At exp 1w 2w 1.42 141 142 145 1.41 71 76 84 1.4 0 24 37 1.39 0 4 11 1.382 0 1 4 « 4bp is mid mkt, offer is 6bp 3) Position for a Stronger Dollar - lyear view (now or soon) Buy 1y 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 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 1y expiry because this trade could take 6-12mths to play out 11, EURUSD VOL: Low - but then again most most vols are What I like about EURUSD is that central bank olic on each side is dive DE Last Price 7.2650 T High on 12/31/08 19.5225 - Average 10.9287 Low on 05/31/07 5.8000 '99 '00 '01 '02 '03 I, '04 '05 '06 '07 I '08 '09 I '10 '11 I '12 '13 '14 EURUSOVIY turn..." (FUR-USD OPT VOL IV) Monthly 013AN1997-14APR.2014 Copyright! 2014 Bloomberg Finance L.P. 14-Apr-2014 16:49:49 20.0000 18.0000 16.0000 14.0000 12.0000 10.0000 CONFIDENTIAL - PURSUANT TO FED. R. GRIM. P. 6(e) DB-SDNY-0 101703 CONFIDENTIAL SDNY_GM_00247887 EFTA01447159