JP Morgan Insider Trading

WASHINGTON — Securities regulators are examining a surge in options trading just before Wednesday’s announcement that J.P. Morgan Chase agreed to buy Bank One for $58 billion, according to people familiar with the situation.

Regulators at the Chicago Board Options Exchange (CBOE), the largest U.S. stock-options market, are examining the activity at the behest of traders who lost money, said the people, who declined to be named. The Securities and Exchange Commission (SEC) is also looking into the trading, they said.

Trading in options that bet on a drop in J.P. Morgan shares almost tripled Wednesday to more than 20,300 contracts, compared with roughly 7,800 the day before. At the same time, the volume of trading in options that bet on a rise in Bank One shares rose to more than 11,000 on Wednesday from 4,900 on Tuesday.

“The pattern smacks of insider trading,” said Jon Najarian, chief market strategist for Chicago-based PTI Securities and the publisher of, an online newsletter about unusual activity in the options markets.

Investors who paid 5 cents for a Bank One call option to buy one share for $47.50 saw the options’ value rise to $2.90 Thursday. At the same time, an investor who paid 85 cents for a J.P. Morgan put option to sell one share for $40 saw the option’s value close at $1.10 Thursday. Call options give holders the right to buy a company’s shares at a set price by a certain date.

J.P. Morgan spokeswoman Adam Castellani declined to comment on the options trading. Bank One spokesman Thomas Kelly didn’t return a call seeking comment.

“We review all trading activity,” CBOE spokesman Lynne Howard-Reed said. “However, we do not comment on any specific situation.”

Joseph Cella, chief of the SEC’s Office of Market Surveillance, said he could not confirm or deny the existence of any specific investigation.

Separately, the two merging banks have declared an immediate hiring freeze to give current employees the best chance of being considered for jobs after the two banks combine. The two companies have said 10,000 jobs will be cut over three years, mainly by attrition. That would be about 7 percent of the new firm’s 145,000-person work force.

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