Bear Stearns option players bet on sweeter offer

By Doris Frankel

CHICAGO (Reuters) - Speculators flocked to Bear Stearns Cos call options on Monday, betting that JPMorgan Chase's amended bid will be sweetened again or a competing offer may come to the table, analysts said.

JPMorgan Chase & Co earlier on Monday raised its all-stock offer for the investment bank to about $10 a share from the $2 "fire sale" price which rocked Wall Street a week ago.

Under the revised deal, JPMorgan will be allowed to buy 95 million newly issued Bear Stearns shares. Bear's board agreed to vote in favor of the deal, which has substantial financial support from the U.S. Federal Reserve.

"We are seeing aggressive buying of Bear Stearns calls and puts with a strong bias on the call side as investors anticipate that JPMorgan may have to increase their bid once again," said William Lefkowitz, options strategist at brokerage firm vFinance Investments.

"There is also some speculation that a competing bid could come in," Lefkowitz said.

Investors often turn to equity calls, giving them the right to buy the underlying shares at a given price and time, on hopes that the stock price will appreciate. Puts convey the right to sell the underlying shares.

Jon Najarian, a founder of Web information site optionmonster.com, cited talk that JPMorgan's bid for the ailing investment bank may now be trumped by another party, citing the current share price premium to JPMorgan's sweetened bid.

"I view that as an extremely unlikely scenario." said Najarian. "But I would not rule out JPMorgan sweetening the bid slightly one more time."

Bear Stearns' shares surged 91 percent to $12.19 in Monday afternoon trade on the New York Stock Exchange.

Option volume in Bear shares totaled 288,000 contracts in afternoon trade, according to option analytics firm Trade Alert. About 170,000 calls traded compared to 118,000 puts, exceeding its normal combined recent daily volume of 178,000 contracts.

Najarian also noted the bulk of options traded have strike prices in April, supporting ideas something will happen soon.

"The fast money players are saying this deal will close in days or at most weeks, not months," Najarian said.

Among the strikes most in demand were April $10, $12.50 and $15 calls, which all posted volumes exceeding Friday's open interest, indicating new positions initiated.

Najarian believes some players are not betting on a sweetened price being above $15 a share and that many have already cashed on their bullish bets.

The buyers and sellers in Bear Stearns calls at the April $12.50 and $15 strikes calls have fought to a 50/50 split, meaning that the early buyers have now turned sellers, with as many calls showing up as sold on the bid as those bought on the offer, Najarian said.

(Reporting by Doris Frankel; Editing by Tim Dobbyn)