Larry Ellison is supporting a bid by Paramount Skydance to acquire Warner Bros. Discovery, with the transaction expected to be primarily cash-based. The proposal reportedly covers the entire company, including its cable networks and movie studio.
In response to this news, shares of Warner Bros. Discovery rose by 17% in a single day. Skydance, managed by Ellison’s son David, recently completed a merger with Paramount, showcasing quick business manoeuvres.
Larry Ellison has recently gained attention for surpassing Elon Musk, albeit briefly, as the world’s richest man. His wealth surged by $100 billion, following a 35% increase in Oracle shares, while Warner Bros. Discovery’s total market capitalisation stands at roughly $37 billion.
We are seeing a massive spike in Warner Bros. Discovery (WBD) shares, which directly impacts its options chain. Implied volatility on near-term WBD contracts has reportedly surged past 70%, up from an average of just 35% last month. This suggests the market is pricing in significant price swings, not just a steady climb to a potential buyout price.
On the other side of the trade, we should watch Paramount (PARA) for potential weakness, a common reaction for an acquirer in a cash-heavy deal. A combined entity would likely carry a staggering debt load, something we saw punish other media conglomerates after the interest rate hikes of 2022 and 2023. This makes buying PARA put options a logical hedge or a speculative bet against the deal’s structure.
The biggest question is regulatory approval, which remains a significant hurdle for deals of this size. We only need to look back at the difficult antitrust reviews for media mergers in the late 2010s to see the potential for failure, as deal completion rates for mega-mergers have hovered around 60% in recent years. This uncertainty supports strategies like long straddles on WBD, which would profit from a large price move in either direction.
Since the bid is reportedly primarily cash, it creates a potential ceiling for the WBD stock price around the final offer value. This makes selling out-of-the-money call options or implementing call credit spreads an attractive strategy for those who believe the deal will go through but with limited upside beyond the initial pop. The premium collected from selling these options can generate income while we wait for more concrete details to emerge.
