Bear Stearns trading at $7

I've been staring at the stock for two days wondering why it would do that. It seems crazy. People are buying a stock that's being taken out for $2.

This article in Fortune attempts to explain it, so take a look if you're as confused as I was.

The gist is that investors short Bear Stearns credit swaps are buying the stock to lock in their gains and to vote in favor of the deal. Debtholders, who would get a significant pop in the value of their debt as it's exchanged for JP Morgan's more highly rated debt, are also buying stock to vote in favor of the deal.

In the event the deal doesn't go through, Bear Stearns likely winds up in bankruptcy and bondholders have to fight with other creditors over the remains.

This makes me glad I don't do arbitrage or financial stocks. Buying a $2 stock for $7 to vote in favor of a deal at $2! I'm glad I don't have to make these decisions.