Unconventional High-Stakes Gamble! Mysterious Trader Bets on Netflix (NFLX.US) "Failed Bid" Turning into a Good Bet, $14 Million Option Layout Exposed.

According to options market data, a mysterious trader recently established a unique position worth nearly $14 million, betting that streaming giant Netflix (NFLX.US) could still see an increase in its stock price even if it loses in the bidding for Warner Brothers Discovery (WBD.US). Specifically, the speculator bought 55,000 Netflix May call options with a strike price of $90, while simultaneously selling an equal number of call options with a strike price of $105, partially offsetting the cost of the premium. The price differential strategy for these options contracts had a unit price of approximately $2.51, with a total premium expenditure of $13.8 million. If Netflix's stock price starts to rise from the current level of $83, this strategy will give the holder the right to purchase 5.5 million shares of stock at a specific price. In terms of background, Paramount Skydance Corporation (PSKY.US) made a new acquisition offer on Tuesday of $31 per share, which is more competitive than Netflix's previous agreement with Warner Brothers at $27.75 per share. Although Warner Brothers has not yet withdrawn its support for Netflix's acquisition proposal, they have acknowledged that Paramount's latest offer has met the trigger condition for further negotiations. According to the agreement, if the Netflix bidding fails, they will receive a breakup fee of $2.8 billion. In response to this, Netflix's stock price surged 6% on Wednesday, marking the largest single-day increase since April. JonesTrading event-driven strategy experts point out that the clever aspect of this options combination is that if Paramount ends up winning, it could actually trigger a rebound in Netflix's stock price. Assuming that Netflix's stock price soars by 30% before the May 15 option expiry date, the theoretical maximum gain for this position could reach $68 million; even a moderate increase could be enough for the trader to profit from the increase in implied volatility. Water Island Capital's merger arbitrage fund manager analysis suggests that investors are anticipating that Netflix may choose to voluntarily terminate the deal. It is worth noting that Politico reported that Netflix CEO Sarandos will be visiting the White House on Thursday to discuss the acquisition, which the market interprets as a signal that "Netflix may not have completely abandoned the idea of increasing their offer."