Quoted: Portfolio Market Movers

Explaining the Bear Stearns Share Price

Portfolio.com writer Felix Salmon gives me a hard time for having a cryptic explation of of why Bear Stearns shares traded at a premium to the initial Bear Sterns deal price as determined by the NY Fed and JPMorgan.  Over AOL Instant Messenger he gave me a chance to elaborate.

"There's another reason for bondholders to buy stock above $2. Explains Neubert: 

'Think of equity as an option on the assets of the company. Higher uncertainty means the equity has more value, just like an option.. Think of the equity as an out-of-the-money call. Implied volatility has more influence on the price of out of the money call options that the price of the asset.'"