Bear Stearns options traders see more stock turmoil

By Doris Frankel

CHICAGO (Reuters) - Option traders on Friday braced for more turbulence in the shares of Bear Stearns Cos after the investment bank was forced to turn to JPMorgan Chase and the Federal Reserve for emergency financing.

Shares of Bear Stearns closed down about 45.9 percent to $30.85 on the New York Stock Exchange.

The slide in the shares prompted options market makers to add several new series of put and call options at the start of the session.

Most notable were newly added calls and puts from the $22.50 strike all the way down to the $5 strike in the front month of March, which goes off the board next Thursday.

The demand for Bear Stearns options pushed up its March at-the-money implied volatility, the expected magnitude for its share price movement as conveyed by option prices. Its implied volatility was about 335 percent at the close, after briefly topping 700 percent on Friday morning, according to Jon Najarian, a founder of Web information site optionmonster.com.

"These high levels are still reflecting extreme risk and continued expectations of violent price (share) movement," Najarian said. "

Options in Bear surged this week on liquidity concerns. Volume also was heavy on Friday as roughly 446,000 puts and 312,000 calls traded, nine times the normal level, according to option analytics firm Trade Alert.

Options activity also was heavier than usual in investment banks Merrill Lynch and Lehman Brothers, favoring the put side.