Recent options market data reveals that an unidentified trader has established a nearly $14 million unusual position, betting that streaming giant Netflix (NFLX.US) could see its stock price rise even if it fails to win the bidding for Warner Bros. Discovery (WBD.US). Specifically, the speculator purchased 55,000 Netflix May-expiration $90 call options on Wednesday while simultaneously selling an equal number of $105 call options to partially offset the premium cost. This options spread strategy carried a contract price of approximately $2.51, totaling a premium outlay of $13.8 million. Should Netflix's stock price climb from its current $83 level, this strategy would grant the holder rights to purchase 5.5 million shares at specific prices.
The development follows Paramount Skydance's (PSKY.US) Tuesday proposal of a new acquisition offer at $31 per share, which appears more competitive than Netflix's previous $27.75 per share agreement with Warner Bros. Although Warner Bros. hasn't withdrawn its support recommendation for Netflix's acquisition proposal, it acknowledged that Paramount's latest offer has met conditions requiring further negotiation. Under the agreement, Netflix would receive a $2.8 billion breakup fee should its bid fail. Stimulated by these developments, Netflix's stock surged 6% on Wednesday, marking its largest single-day gain since April.
JonesTrading event-driven strategy experts note the sophistication of this options combination lies in how Paramount ultimately winning could potentially trigger a Netflix stock rebound. If Netflix's stock price surges 30% before the May 15 options expiration, the position could theoretically yield maximum profits of $68 million; even with moderate gains, increased implied volatility could enable profitable exit opportunities. Water Island Capital merger arbitrage fund managers analyze this as indicating investor expectations that Netflix might choose to voluntarily terminate the deal.
Notably, Politico reported that Netflix CEO Ted Sarandos will visit the White House on Thursday to discuss acquisition matters, which markets interpret as signaling that Netflix may not have completely abandoned efforts to improve its offer.