(FORTUNE Magazine) – J.P. Morgan Chase is diving into a new business. In December the bank completed a landmark deal to buy up underwater options from Microsoft employees, paying an average $1.11 per share for 345 million options. (Employees could participate only if their options had a strike price of $33 or above; Microsoft's stock currently trades at $27.) More than half of Microsoft's eligible employees cashed in, including seven vice presidents who sold options valued at about $23 million (Bill Gates and CEO Steve Ballmer don't receive options). Besides the bucks the bank could make if Microsoft's stock climbs, J.P. Morgan also reaped more than $10 million in fees for the deal.

Now the bank is trying to turn this novel deal into an ongoing business niche. J.P. Morgan has filed a patent on the deal's structure, and its bankers are meeting with tech, telecom, and financial services companies that they say are considering both one-time and ongoing (for instance, quarterly) option-transfer programs. Some companies may be willing to do a deal to improve employee morale, but accounting-rule changes could also be a motivating factor. Beginning in 2005, all companies will likely have to start expensing options--that will hurt profits at firms that have awarded big options grants. The looming deadline "makes this a front-and-center issue," says Peter Engel, a J.P. Morgan banker who worked on the Microsoft deal.

Still, Microsoft's situation was not that of the average troubled tech company. "Microsoft was moving from giving its employees options to giving them restricted stock, so this deal makes a lot of sense," says Bruce Brumberg, editor of Mystockoptions.com, an online research firm. "But in an up market, options have a lot more value." That is, unless your company's stock is swimming with the fishes. --Julie Creswell