Rio Tinto and Glencore are considering a merger that could include Glencore’s coal business. This comes after a rise in demand for copper, which has sparked renewed interest in Glencore. Rio Tinto is revisiting a past attempt to make a deal that didn’t work out. The recent surge in copper prices has boosted confidence that this time the valuation will match. In big mergers like this, the share price of the acquiring company usually drops, while the target company’s share price often rises. Right now, Rio Tinto’s shares have fallen by 2.5%, while Glencore’s have soared by over 10%. The future stock prices will depend on how the deal develops, along with regulatory hurdles and final terms. A similar situation happened with the Warner Bros. acquisition attempt. Despite some excitement in the market, Warner Bros.’ share prices have mostly held steady due to ongoing negotiations, showing that delays can slow down price increases. Over the past month, Warner Bros.’ shares increased by 3%, but they dipped by 1.6% last week. Netflix’s shares dropped by 6% after its bid, and Paramount’s fell by 14% after a higher offer was made. This situation illustrates how uncertainty and regulatory scrutiny can keep prices from rising. With Glencore’s stock climbing over 10%, there’s a strong opportunity to buy call options to benefit from further price increases. If Rio Tinto enters a bidding war or raises its offer, these options can offer significant upside. The backdrop is favorable, as copper prices have recently surpassed $11,500 per tonne, up 30% since the third quarter of 2025, giving Glencore a strong case for high valuation. However, we must remember the Warner Bros. experience in late 2025, when the target’s stock rally lost momentum due to delays. Glencore’s 30-day implied volatility has spiked to over 45%, much higher than its 52-week average of 28%. This makes selling out-of-the-money puts a compelling strategy for earning high premiums, especially if we think negotiations will take a long time and the stock will trade sideways. For Rio Tinto, the expected 2.5% drop in its stock price presents a different kind of trading opportunity. We could consider buying put options to bet on further declines, especially if the market believes Rio is overpaying or taking on too much risk. As seen with Paramount’s stock falling 14% during its Warner Bros. acquisition attempt last year, markets typically penalize acquiring companies during major merger talks. There is also a significant risk that regulatory bodies in the UK, EU, or China may block any potential deal, likely causing Glencore’s stock to lose its recent gains. The challenges that halted the BHP-Rio merger in 2008 serve as a reminder of how these deals can fail. A contrarian strategy could involve buying Rio Tinto call options, betting that its stock will bounce back sharply if the merger is officially called off.

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