TheStreet.com's Jim Cramer says the acquired Bear Stearns portfolio is worth even less than he thought.

How bad was that Bear Stearns portfolio? I am beginning to believe that JPMorgan's (NYSE: JPM) (Cramer's Take) buy of Bear is looking like a big mistake. It can only be justified by what might have been an even bigger problem for JPM -- the collapse of the trades that Bear made, which were being processed by JPM's clearing.

We are now beginning to get a real sense of the worthlessness of the mortgage portfolios. Not that we got any help from the SEC, which has taken a "we don't care what's in the mortgages as long as you tell us you have mortgages" attitude. That's been worthless for investors, and maybe even for JPMorgan.

The losses now exceed $400 billion, according to my modeling (if you simply assumed that 50% of the exotic mortgages that were issued from 2005 to 2007 eventually went into default). That's amazing, but it looks like I dramatically underestimated the losses. UNDERESTIMATED!

The most egregious issuers of these exotic mortgages were Bear, Merrill Lynch (NYSE: MER) (Cramer's Take) and Lehman Brothers (NYSE: LEH) (Cramer's Take). I believe that JPM has taken in a huge number of uninsurable, non-hedgeable mortgage instruments that are a pure write-off. And that means they are probably underwater on everything they took in.

JPMorgan Chase (NYSE: JPM) shares are falling today after competitor Morgan Stanley (NYSE: MS) reported its second-quarter profit sunk 61 percent to $1.01 billion, or 95 cents per share, after paying preferred dividends. MS beat analysts' estimates of a 92 cent per-share profit, but only after raising $1.4 billion through asset sales, which could be a bad sign for the financial sector and JPM. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on JPM.

After hitting a one-year high of $50.99 last June, the stock hit a one-year low of $36.01 in March. This morning, JPM opened at $38.53. So far today the stock has hit a low of $37.93 and a high of $38.70. As of 11:45, JPM is trading at $38.80, down $0.24. The chart for JPM looks bearish and steady, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.

For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in three months as long as JPM is below $50 at September expiration. JPM would have to rise by more than 30% before we would start to lose money. Learn more about this type of trade here.

TheStreet.com's Jim Cramer says constant vacillations and inconsistent messages have conspired to extend this crisis.

There was a reason to go ballistic. The financial system was falling apart because of bad loans that have since been magnified by huge leverage and dubious dividends.

And here we are, more than a year into the crisis, and the Federal Reserve and Treasury still refuse to admit the obvious, despite hideous data every day -- yesterday Lehman (NYSE: LEH) (Cramer's Take) and Washington Mutual (NYSE: WM) (Cramer's Take), today UBS (NYSE: UBS) (Cramer's Take) -- that something has to give. We are either going to be worried about a housing recession or worried about inflation. We cannot be worried about both. Because of this half-in/half-out viewpoint, we have continually failed to address either problem.

Last year was the year to cut and cut big to get refinancings done and allow banks to build capital by playing the yield curve, a la 1990. They blew that. They were worried about inflation. This year you either have to take a severe recession and just crush American business so it uses less energy and crush the American homeowner so he can't pay and then merge all of the banks, or you say we are going to solve the recession/housing conundrum first and address the inflation we can address: ethanol-based food inflation. You cannot do both! You have to take them sequentially.

JPMorgan Chase (NYSE: JPM) shares are trading higher on news that shareholders of Bear Stearns Cos. (NYSE: BSC) have approved JPM's $2.2 billion buyout of the investment bank. JPM will buy BSC for about $10 a share. The deal is expected to become official tomorrow. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on JPM.

After hitting a one-year high of $52.31 last May, the stock hit a one-year low of $36.01 in March. JPM opened this morning at $42.69. So far today the stock has hit a low of $42.29 and a high of $44.06. As of 12:15, JPM is trading at $43.79, up 0.93 (2.2%). The chart for JPM looks bullish and deteriorating, while S&P gives the stock its highest 5 Stars (out of 5) strong buy rating.

For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $37.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 11.1% return in just seven weeks as long as JPM is above $37.50 at July expiration. JPMorgan would have to fall by more than 14% before we would start to lose money. Learn more about this type of trade here.

JPM hasn't been below $7.50 at all in the past year except for a short time in March and has shown support around $42 recently. This trade could be risky if the financial sector suffers some more in the coming months, but even if that happens, that position could be protected by support the stock might find just above $40, where it bottomed out twice in the past two months.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in JPM or BSC.

Last night Intuitive Surgical (NASDAQ: ISRG )reached a historic milestone in its meteoric company life when Standard & Poors decided to add it to the S&P 500 index. It will be replacing Bear Stearns (NYSE: BSC) after J.P. Morgan Chase (NYSE: JPM) completes it's acquisition in the next couple of months.

After a tough day yesterday Chasing Value: Intuitive Surgical confounds Wall Street and closed down to a recent low of $274.75. It opened up today on the news and is currently trading up about 4% to $285 per share, in a market that is trading down across the board.

The following five-year chart illustrates the rapid rise of this highly specialized company that produces a robotic surgical device called the "da Vinci System". They own all the patents for the hardware, software, replacement parts, and service contracts too. That is one big moat around this company.

If you were following my post last year you might have read Serious Money: You asked about Intuitive Surgical? when ISRG was trading in the low $120's. Since that time it has reached $359.59 -- not a bad return. I have been following ISRG since the beginning and own shares at $7.70 the lowest entry point possible post IPO.

The irony of this story is that I also recommended Bear Stearns last year so my best stock pick ever is replacing one of my worst. Intuitive Surgical belongs on your watch list, and if it dips again during the sumer doldrums perhaps there might be another buying opportunity.

UPDATE: ISRG finished the day at $284.77 up $10.02 (+3.65%)

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of ISRG.

JP Morgan Chase (NYSE: JPM) May option implied volatility of 33 is below its 26-week average of 38 according to Track Data, suggesting decreasing price movement.

Wells Fargo (NYSE: WFC) May option implied volatility of 33 is below a level of 52 from April 14 and below its 26-week average of 40, suggesting decreasing price movement.

Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

Since I have been a shareholder of Berkshire Hathaway (NYSE: BRK.A), I have enjoyed reading with great interest the musings of company chairman Warren Buffett as he gives almost a play-by-play review of the year in his letter to shareholders. He writes in a tone I would compare to Will Rogers, the writer, actor, comedian, cowboy and former mayor of Beverly Hills.

"My pal Warren" highlights both the triumphs and disasters of the year and his own perspective of the State of the Union and the economy like only he can. I strongly recommend investors take the time to read his letter(s).

One of the most often referred to items in Buffett's letters is regarding the quality of the management at each of the companies that Berkshire owns, or has major stock holdings in. There are many shrewd investors who will make a convincing argument that the quality of management is the highest priority.

He glowingly speaks of the wisdom, integrity and hard work of his management partners. He openly states that one reason that most of Berkshire acquisitions tend to work so well is the mutual appreciation of these character traits they all share. Unlike many companies that look to make money by shaking up the management structure, Buffett bases his investment strategy on keeping the strong management that built the enterprise in place.

JP Morgan Chase (NYSE: JPM) shares are trading higher after acquisition target Bear Stearns (NYSE: BSC) posted a profit of $110 million, or 86 cents per share, just below analyst projections of 87 cents per share. The results show that BSC was able to make profits during the ongoing credit crisis. Other financial stocks also reporting good news this morning include M&T Bank (NYSE: MTB) and Schwab (NASDAQ: SCHW). This could be a good sign for JPM, which reports earnings tomorrow. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on JPM.

After hitting a one-year high of $53.25 in May, the stock hit a one-year low of $36.01 in March. JPM opened this morning at $42.18. So far today the stock has hit a low of $41.28 and a high of $42.70. As of 12:10, JPM is trading at $41.91, up $0.41 (1.0%). The chart for JPM looks neutral but deteriorating, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

For a bullish hedged play on this stock, I would consider a May bull-put credit spread below the $35 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in just one month as long as JPM is above $35 at May expiration. JPMorgan would have to fall by more than 16% before we would start to lose money. Learn more about this type of trade here.

JP Morgan Chase (NYSE: JPM) closed at $46.24 Wednesday.

JPM is scheduled to report Q1 EPS on April 16. JPM April option implied volatility of 46 is above its 26-week average of 39 according to Track Data, suggesting larger price movement.

Bear Stearns (NYSE: BSC) volatility is at four-week lows as JPM buyout spread tightens.

BSC closed at $10.86 Wednesday. JPM revised its buyout offer for BSC on Mar. 25 to 0.21753 shares. BSC over all option implied volatility of 70 is at four-week lows according to Track Data, suggesting decreasing risk.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

TheStreet.com's Jim Cramer says we'll finally get real pricing of the hard-to-mark paper.

After months of saying, "Why don't they bring in some pros, do a Resolution Trust and get on with things?" I can't believe that it is actually happening. With the anointing of BlackRock (NYSE: BLK) (Cramer's Take) -- nice short squeeze in that one, buddy -- to parse out or invest in the worst toxicity that is Bear's (NYSE: BSC) (Cramer's Take) portfolio, the Fed/Treasury -- and I reiterate that the Treasury is driving this -- is signaling the beginning of the end of the "hard to mark/hard to trade" component of this nasty bear market in fixed income.

Even as recently as two weeks ago I could not believe this stuff couldn't trade and remained 20 bid and 80 asked, meaning that the gulf between buyers and sellers was just too ridiculous.

Now, with BlackRock, empowered by the government, to dump stuff or parse it out, we are going to get real prices because "something has to happen." Some trades have to occur. All that had happened before this was that Bear inventoried all this bad stuff, having unwound it from funds of its own or taken junk from clients, and we had no idea how to value it.

How sad that Wall Street proves once again to be full of hot air, and the Federal Reserve too. Last week I wrote that Bear Stearns (NYSE: BSC) was being sold way too cheap and I was not alone in my thinking. Now, all of a sudden, JPMorgan Chase (NYSE: JPM) increases its offer for the Bear 500% -- from $2.00 to $10.00 per share.

There are many aspects to this story that rub me the wrong way! If JPM can swallow this deal at an increase of 500% without even blinking (maybe sheepishly smiling) then it shows that it drove a hard bargain with the Federal Reserve negotiators and probably was even in shock itself realizing what a steal it walked away with. And stealing is what it was. At least from a shareholder perspective.

The Federal Reserve now has egg on its collective face and the public confidence became weaker in the government's ability to come to grips with the problem of Wall Street.

Bear Stearns got in trouble last week for a lack of liquidity, not a lack of assets. BSC lost its liquidity because there was a modern day "run on the bank." The new offer from Chase basically ups the ante to approximately the value of Bear Stearns' headquarters building, which last I read was worth $1.1 billion.

Last weekend JPMorgan Chase & Co. (NYSE: JPM) struck a deal to acquire -- or steal -- The Bear Stearns Companies (NYSE: BSC) for $2 a share (or $236 million) with the help of $30 billion in Fed financing. For the first time in my life, I was amazed to read in the New York Times that JPMorgan is now negotiating to raise its bid to $10 a share -- or $1.2 billion.

Why is this happening? Because some big shareholders plan to fight the deal. A third of Bear Stearns is owned by employees and British billionaire financier Joe Lewis, the firm's largest shareholder, who had invested $1.26 billion in Bear over the last year at an average price of about $104. JPMorgan needs 51% shareholder approval for the deal to go through. Last night, Bear's board was negotiating to sell JPMorgan 39.5% of the firm -- leaving it in a position to need only 10.5% of shareholder support to complete the transaction.

However, even that 39.5% deal may not go through as the Federal Reserve, which guaranteed $30 billion of Bear's most illiquid assets, is sensitive to criticism that it bailed out Bear. It's worried that allowing that deal will subject it to even more criticism. On Sunday JPMorgan was negotiating with the Fed to take some of the heat off the Fed by assuming at least the first $1 billion in losses on Bear assets before the $30 billion kicks in.

The New York Times is reporting that JPMorgan Chase & Co. (NYSE: JPM) is in talks with Bear Stearns Companies Inc. (NYSE: BSC) to quintuple its offer for the company -- a move that would raise the deal from $2 per share to $10 per share, providing a very nice return to anyone who bought stock recently -- it closed on Thursday at $5.96.

The new deal that is being discussed is designed to assuage the concerns of Bear Stearns shareholders who have vowed to vote against the deal.

The Times adds that, "The Fed, which must approve any new deal, was balking at the new offer price on Sunday night after several days of frantic, secret negotiations, these people said. As a result, it was still possible the renegotiated deal might be postponed or collapse entirely, said these people, who were granted anonymity because of their confidentiality agreements."

If JPMorgan quintuples its offer to appease disgruntled shareholders in a company that can't survive on its own, it will be an outrage. The Fed has agreed to take on $30 billion worth of Bear Stearns' worst assets. If the company needs to be bailed out by the taxpayers, stockholders who put their money at risk buying shares should not receive anything. Two dollars per share was generous. The sum of $10 per share would not just be a bailout of Bear Stearns -- it would be a handout to people who lost money in the stock market.

If Bear Stearns shareholders think the company can do better in bankruptcy, they should go for it. Vote against the deal and see how that works out. But no taxpayer-subsidized bailout should include over $1 billion in cash for shareholders of a mismanaged company.

There must a few other market saps out there like me who are wondering why Bear Stearns (NYSE: BSC) closed yesterday at $5.91 per share when it has been reported continuously for the last 72 hours that JP Morgan Chase (NYSE: JPM) was only paying $2 per share to take over the company. Now it is being reported that the figure is $2.34 -- Oh boy!

I say market saps because I hold the stock and could sell it for more than the $2 but I don't. Why not? What am I hoping for? Until this morning there has not even been the slightest rumor that some white knight will come to the rescue and acquire the company for more than the measly $238 to $276 million price tag being discussed.

Yesterday I wrote that what "JP Morgan Chase (NYSE: JPM) is paying for Bear Stearns (NYSE: BSC) would not have been enough to buy the brand name last year, never mind the whole company." This being the case, I would love to see the line by line worksheet that the negotiators (some might call them scoundrels) assisted by the Federal Reserve Board worked up to determine the acquisition price. I understand that JPM is assuming a mountain of liabilities but I thought that the Fed has given JPM assurances that they would cover short term losses. In the long run, some of that bad paper is going to be worth billions of dollars.

Friday morning, lost in the midst of another bad day in the market, Newcastle Investment (NYSE: NCT) reported that it would be cutting its dividend to increase cash for additional liquidity and possible share buybacks. As the stock price has gone down, the trailing dividend yield continued to rise. When I bought at $12.50, the yield was about 22%. The trailing yield as of Friday's close was 32.50% at a stock price of $8.60. Looking forward the current payout will be $0.25 per share, decreasing the yield to about 11% going forward.

The lower yield is in line with the level of distributions made before the financial crisis, but many investors since were looking to enjoy the higher yields given their now higher level of market risk. The stock lost $1.64, almost, 16% on this news and the overall negativity, caused in part by one of the Carlyle Groups investment vehicles Carlyle Capital collapsing and Bear Stearns (NYSE: BSC) news on Friday that it was remaining open but only as a ghost of its former self with the help of the Federal Reserve and JP Morgan Chase (NYSE: JPM). Of course, we all know that by Sunday afternoon it was announced that JPMorgan will be acquiring Bear Stearns for $2 share.