<table><tr><th>From:</th><th>Richard Kahn</th></tr><tr><td>Sent:</td><td>Tuesday, August 1, 2017 4:27 PM</td></tr><tr><td>To:</td><td>jeffrey E.</td></tr><tr><td>Cc:</td><td>Paul Barrett</td></tr><tr><td>Subject:</td><td>Fwd: FX Option Themes One-Pager</td></tr></table>

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

## Morgan Stanley Wealth Management (cont.)

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

## (iii) 2-month USDJPY 109.00 put with RKO at =05.50 a/0.17% of USD notional (cont.)

# &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

(ii) &nb=p; 1-year USDTRY 3.50 put, RKO at 3.30 à/0.13% USD notional

Vanilla offered at =.06%

&nb=p; = Ref: USDMXN 17.77, =SDTRY 3.5225

Other Option =deas*

# &nb=p; = Ref: EURCHF 1.1405 (cont.)

## (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

# &nb=p; = Ref: EURCHF 1.1405 (cont.)

## (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

Important Information & Qualifications

# &nb=p; = Ref: EURCHF 1.1405 (cont.)

## (ii) &nb=p; EUR Tail Risk Hedge (cont.)

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# &nb=p; = Ref: EURCHF 1.1405 (cont.)

## (ii) &nb=p; EUR Tail Risk Hedge (cont.)

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# &nb=p; = Ref: EURCHF 1.1405 (cont.)

## (ii) &nb=p; EUR Tail Risk Hedge (cont.)

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