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."