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European equity investors last week sold short-dated single-stock and index puts to earn premium, believing that the market is about to turn a corner. Rachid Bouzouba, head of world book trading and exotics for equity derivatives at Credit Lyonnais in London, said investors have been heartened by the rising U.S. equity markets, adding that his technical analysis shows the Nasdaq's rally last week is not just a short-term blip.

Some hedgers opted to buy one to three month Mexican peso puts against the U.S. dollar last week as implied volatility declined significantly from the previous week. Hedgers took the short view that the Mexican peso might decline against the dollar in coming weeks since the U.S. markets appeared to be rebounding.

Credit default swap spreads on Motorola blew out last week after the company last week reported its first quarterly loss in some 15 years. Five-year protection on the telecom company traded at 465bps on Wednesday, while it had previously traded between 100-250bps, according to a trader in London. Traders in New York and London said volumes in the credit picked up as players who had bought protection at lower levels locked in profits and investors who had sold the default swap hedged further losses. The average notional value of the trades was USD10 million.

Over the last two weeks, Lehman Brothers has bought some GBP800 million (USD1.15 billion) (notional) in swaptions. Traders speculated that the firm bought the options on behalf of Morgan Grenfell Private Equity, which is purchasing pub assets from U.K. entertainment and leisure conglomerate Whitbread, and securitizing some GBP1.6 billion (USD2.3 billion) in future pub revenue. Lehman is lead managing the securitization.

Ron Mayers, former National Bank Financial risk arb salesman and internal fund manager, is set to launch an event-driven merger arb fund in Canada that will likely eventually use over-the-counter derivatives. The Montreal-based fund, dubbed Genoa Capital, will be launched in about a month, with CAD100 million (USD64 million) in assets.

Lehman Brothers is pitching to institutional and high-net-worth clients a short-term strangle strategy that aims to take advantage of the current high levels of near-term volatility of certain stocks in the Standard & Poor's 500. Lehman last week drew up a list of stocks, including Apple Computer and Hewlett-Packard, for which this trade makes sense, said Paul Lieberman, v.p., equity derivatives and quantitative research in New York.

Salomon Smith Barney has hired two equity derivatives professionals in Hong Kong to help cover Korea. James Jung-Beck Kim, equity derivatives trader at Morgan Stanley in Hong Kong, has joined Salomon as director, equity derivatives trading to run the Korea book. Moon Soo Kim, formerly of fixed income sales at Goldman Sachs, also in Hong Kong, is now the director of equity derivatives sales, Korea coverage. They report to Harold Kim, managing director, co-head of Asia-Pacific equity derivatives for SSB.

Granting rehypothecation or "use rights" with respect to pledged collateral is common in the over-the-counter derivative market. In fact, subject to the pledgor's consent, the credit support annex to the International Swaps and Derivatives Association master agreement provides the secured party with the right to rehypothecate, or use for its own purposes, collateral pledged to it---subject only to the obligation to return the collateral once the pledgor has satisfied its obligations. Customers, however, are often alarmed to learn that the dealer requires such an unrestricted right to use and sell the pledged collateral.

Energy and commodities behemoth Enron and Korean consulting firm WeatherMoney are looking at offering weather derivatives to Korean power companies because of deregulation in the country's power industry. Earlier this month, the government split the monopoly electricity producer Korea Electric Power Corporation into five regional companies and one nuclear energy company. When a country deregulates its power industry, competition often spurs power companies to become more sophisticated in managing risk, said Sangwook Ahn, ceo of WeatherMoney in Seoul.

Banking on the Federal Reserve cutting rates another 50 basis points in the short term,BNY Asset Management has been selling longer maturity treasury notes in favor of MBS, and possibly corporates further down the track. Margo Cook, who heads up the firm's $5 billion institutional fixed income division, says her most recent move was to sell long-term treasuries in favor of Ginnie Mae 7%s. "We've been moving more into 7%s and 7.5%s, because they've been beaten up by worries over refinancing, and we think those spreads will tighten."