Insert background picture

I’m running Office 2007 I am sending an email, and want to set a picture in the background (watermark?). I cannot find an option to do that.

That option indeed can be a bit hidden and not too intuitive in the latest version of Outlook.
Create a new message-> tab Options-> button Page Color-> Fill Effects…-> tab Picture

If you were wondering where that option is in previous version of Outlook;

With Word as the email editor
Create a new message-> Format-> Background-> Fill Effects…-> tab Picture

With Outlook as the email editor
Create a new message-> Format-> Background-> Picture…

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