Larry Ellison is backing Paramount Skydance’s attempt to buy Warner Bros. Discovery. The deal is expected to be mainly cash-based and aims to acquire the whole company, including its TV networks and movie studio. After this news, Warner Bros. Discovery’s stock jumped by 17% in just one day. Skydance, led by Ellison’s son David, recently merged with Paramount, showing their ability to act quickly in business. Larry Ellison recently caught the spotlight after briefly surpassing Elon Musk as the richest person in the world. His fortune increased by $100 billion, thanks to a 35% rise in Oracle shares. In comparison, Warner Bros. Discovery is valued at around $37 billion. We’re seeing a huge rise in Warner Bros. Discovery (WBD) shares, which is closely affecting its options market. Implied volatility for WBD’s short-term contracts has soared past 70%, up from an average of just 35% last month. This indicates that traders expect significant price changes, rather than a smooth rise to a buyout price. However, we should also keep an eye on Paramount (PARA) for possible declines, as acquirers often face challenges in cash-heavy transactions. A merged company would likely have a huge debt, similar to what we’ve seen with other media firms after interest rate hikes in 2022 and 2023. This scenario makes buying PARA put options a smart way to hedge or speculate against the deal. The biggest concern is getting regulatory approval, which can be a tough obstacle for deals of this scale. Looking back, many media mergers faced difficult antitrust reviews in the late 2010s, with completion rates for large mergers around 60% in recent years. This uncertainty supports options strategies like long straddles on WBD, which would benefit from any major price movements. Since the bid is expected to be primarily cash, it may set a potential price limit for WBD shares around the final offer. This opens the door for strategies like selling out-of-the-money call options or creating call credit spreads. These approaches could be appealing for those who believe the deal will happen but expect limited upside beyond the initial price increase. The money made from selling these options can provide income while we await more detailed information.

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