Would you buy Bear Stearns stock now?

People are hoping for a higher bid or that stockholders will reject the offer. JPM jumped 10%, suggesting that Bear is actually worth about 10% of JPM + 250M + 6B in transaction costs.

The free market values Bear at 21.5B, but JPM bought it for 250M. They hope it'll go up - if not, it can only drop to $2.

Its a lottery ticket with limited downside - it could go up to $20 if the deal falls through. People are also buying to cover short positions from Friday.

However, Fortune has a different perspective:

"Why Bear Stearns stock is in orbit

Why is Bear Stearns (BSC) up nearly 70% Tuesday, to a price about $6 a share above its $2-a-share buyout agreement with JPMorgan Chase (JPM)? Two groups are piling into the company’s stock so they can vote in favor of the deal, a trading source tells Fortune’s Roddy Boyd.

The first group is the hedge funds that were selling so-called credit default swaps that protect the purchaser against a possible bankruptcy at Bear Stearns. Spreads on Bear Stearns CDS soared to 1,000 basis points Friday - meaning it cost $1 million to insure against a default of $10 million face value of bonds. Those spreads have since narrowed to around 350 basis points, or $350,000 per $10 million in insurance, in light of the prospect that JPMorgan Chase will take over Bear’s obligations. So a seller of a Bear Stearns credit default swap on Friday, having taken in $1 million in premium, can now turn around and protect himself against a default in Bear Stearns for $350,000. That translates into a $650,000 gain -and the potential profit stands to get bigger as the close of the transaction approaches and Bear spreads move more in line with JPMorgan’s, which are around 115. Those dynamics give hedge funds a big incentive to make sure the deal goes through.

Beyond the credit default swap trade, there’s another group interested in making sure JPMorgan winds up owning Bear Stearns. Holders of Bear Stearns debt want the deal to go through so they won’t end up fighting with other creditors in bankruptcy court over the remains of the firm - the likely outcome if Bear shareholders turn the deal down. And Bear Stearns bonds that recently traded as low as 80 cents on the dollar could soon be worth 100 cents if JPMorgan goes through with its purchase.

So while taking a loss on the stock makes little sense on the face of it, buying at $7 to get cashed out at $2 can pay off if you’ve bet enough money elsewhere."