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One-month implied volatilities for euro/Swedish krona options are likely to spike to 9% at the end of the week from current levels of 6.6%. Thursday is one month before the Swedes vote on whether to enter the euro so the one-month trades will cover the result. This referendum has created an unusually shaped volatility curve. Two month implied vols are currently 9.15% and three-month implied vols fall back to 8.4%. One month volatility has already begun to move, increasing from 6.1% to 6.6% over the last week.

Hunter Davis, senior interest rate derivatives salesman at Commerzbank Securities in New York, has quit the firm to take a similar role at Merrill Lynch. Davis could not be reached. He will report to Chris Matchett, managing director at Merrill Lynch in New York. Matchett declined comment.

Dresdner Kleinwort Wasserstein has set up a joint venture between its collateralized debt obligation group and its credit-default swap trading desk. The firm set up the arrangement because it has started taking more equity risk in its deals and needs closer trading ties to manage the positions.

Vivek Dadlani, former emerging markets staffer at ING Financial Markets in New York, is heading to Citibank Private Bank to work in foreign exchange sales, which includes foreign exchange options. Dadlani could not be reached. Alexander Samuelson, spokesman for Citibank in New York, confirmed Dadlani's hire, but declined further comment.

The euro/Swiss franc 25-delta risk reversal is switching back toward favoring euro puts/Swissie calls. This comes after several months of favoring euro calls/Swissie puts, which is exception in this cross. Many hedge funds, which had been long euros against the Swiss franc, dumped their positions as bond prices weakened over the last month, said a trader, noting that this was largely responsible for the move in risk reversals.

Andrew Feldstein, former managing director and co-head of North American structured products and derivatives marketing at JPMorgan in New York, is setting up a North American arm of London-based hedge fund manager BlueCrest Capital Management. The firm, dubbed BlueCrest North America, will manage the Blue Mountain Credit Alternative Fund, which will invest in structured credit as well as adopt credit arbitrage strategies, he said. Feldstein announced his intention to quit JPMorgan in February (DW, 2/9).

FleetBoston Financial is preparing to issue a USD1 billion collateralized debt obligation, according to DW sister publication BondWeek. It began marketing the transaction last week, said a sell-side banker and analysts who note the deal is being issued to tap strong demand for CDOs backed by senior secured corporate debt, which investors find attractive these days because they provide an extra layer of protection in an uncertain economic climate. On the flip side, CDOs of straight corporate debt have practically disappeared from the new issue market, with just one being sold all year, according to Elizabeth Russotto, a senior director at Fitch Ratings, who was not involved with the deal.

JPMorgan and Deutsche Bank are considering structuring options on hedge fund indices in the coming weeks. Deutsche Bank will likely reference derivatives to the Hedge Fund Research (HFRX) index and market sources say JPMorgan is looking at Standard & Poor's or Morgan Stanley Capital International indices.

Humana, a publicly traded health care provider, has entered an interest rate swap to convert a USD300 million fixed-rate bond into a synthetic floater. Walter Stark, assistant treasurer in Louisville, Ky., said the corporate entered the swap to hedge its interest rate exposure.

Many derivatives professionals will immediately call a forward contract a delta one trade. That's because they believe that a forward sale position can always be perfectly hedged by buying the same amount of the underlying asset at the spot price and vice versa. This is also known as a static hedge because once it is executed it does not have to be altered for the duration of the contract.

Hedge funds are licking their wounds after swaption implied volatility rocketed catching most off guard. The funds had entered strangles after the U.S. interest rate cut in June wrongly predicting vol would be low during the summer. The volatility of three month options to enter five year swaps, for example, leaped from 7.7 basis points per day on June 25 to as high as 10.8 bps per day on August 1, noted one trader. Longer dated options have also seen sharp increases, with the price of one-year options to enter five-year swaps rising from 8.1bps per day to 9.75bps per day in the same period. Vol has come off a little since this peak, he added.