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To: robnhood who wrote (52532)	12/30/2000 12:15:33 PM
From: UnBelievable	Read Replies (5) of 436258

CMB - JPM Revisited Since I am the proud owner of some JPM-MJ's (January 150) and some JPM-MH (January 140) your observation caused me some concern so I looked into the situation a little more closely. I had assumed that the arbs would trade the issues and their derivatives such that at the time of the closing there would not be a material difference in value of either the issues or their derivatives. Based on the information I have been able to obtain the conversion ratio is 3.7 shares of CMB for each share of JMB. At 10:00 AM Friday JPM, trading at 175.44 was trading at a $.08 (.05%) discount to the value of the conversion price of 3.7 * $47.44 (CMB price at 10:00 AM Friday) or 175.52. JPM closed Friday at 165.50 and CMB closed at 45.4375. Based on these closing prices each share of JPM will receive 168.12 value in CMB stock, which represents a $.708 discount on the value of the CMB shares they will receive ( $.191 or .42 % ). While I had assumed that the significant MOC sales in JPM were due to arbitrage transactions looking at it now this is not entirely clear. Since JPM was trading at a discount to CMB the arbitrage trade would seem to be to buy JPM and sell CMB. There was however a significantly greater drop in JPM as compared to CMB which is the opposite of what would be expected. (There may be some more complex arbitrage opportunity that I am not aware of which resulted in these sales and if anyone is aware of how it might work comments would be most welcome.) With regard to the options, assuming that the derivatives were all trading at fair value it would seem that the trade would have been to buy calls on JPM and sell poots on CMB. This is fairly academic though since the options are traded so thinly that a reliable option arbitrage trade could not be assured. Looking at the JPM-MJ's specifically they closed Friday at $2.62 (Bid 2.225 Offer 2.625). My understanding is that the quantity and strike price will be adjusted by the 3.7 exchange ratio meaning that each JPM-MJ will be converted to 3.7 CMB poots with a strike of 40.541. The closest CMB option to that is CJM-MH (January 40) which closed at .375 (Bid .375 Offer .625). If you use the offer (which would seem reasonable given the late price drop in JPM which if was not the result on an arbitirage transaction but rather based on some JPM specific news, which is now CMB news and should be reflected in CMB (trading as JPM <gg>) Monday and the slightly higher strike of 40.541 rather the 40.00, each JPM-MJ will be converted to CMB options with a market value on Friday of $2.313. If the option were in fact to trade on Monday this would mean that the owner of a JPM-MJ will have lost $.31 on the exchange. It will be interesting to see how the options actually trade on Monday. For some reason the market was selling JPM rather than buying it as the simple equity arbitrage trade would suggest should have been the case. So for whatever reason the market was saying that JPM was overpriced vs CMJ. If indeed this is true it may be the case that the value of the equivalent CMJ poots becomes greater than that of the JPM's. It also is possible that a special option contracts will be created with a normal strikes ie ($40, $42.5, $50 etc.)but with a adjusted number of shares in each contract to create the appropriate value. I hope that I have got at least most of this right and would appreciate any comments.

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