The market was hit with a surprising bit of news over the weekend when J.P. Morgan Chase (JPM: sentiment, chart, options) announced that it has agreed to buy Bear Stearns (BSC: sentiment, chart, options) for $2 a share in a stock-swap deal. According to a report in The Wall Street Journal, JPM will exchange 0.05473 shares of its common stock per 1 share of Bear Stearns stock. Both boards have approved the transaction. The Journal reported people familiar with the discussions said all sides were pushing hard to complete an agreement before financial markets in Asia opened for Monday trading. Furthermore, The Journal quoted Treasury Deptartment spokeswoman Michele Davis as saying, "None of these things is done until they're done. But I think everyone's expectation is sometime in the early evening hopefully" the deal will be done.

Last week, news hit the Street that JPM and the New York Fed were jumping in to rescue Bear Stearns, which was suffering from severe liquidity issues. As a result, the market plunged sharply lower on Friday following the news.

On Friday, the shares of BSC plunged more than 47% and are set to gap another 89% lower this morning. Meanwhile, JPM lost more than 4% on Friday and is slightly higher in electronic trading this morning.

In options trading, BSC saw heavy call and put additions on Friday in the March and April series. In those 2 months, call open interest increased by 37.5%, while put open interest increased by 25%. As a result, the Schaeffer's put/call open interest ratio dropped overnight from 1.64 in the 76th percentile to 1.50 in the 60th percentile.