Unidentified Trader Nets Millions After Timely Warner Bros. Discovery Options Purchase
100,000 call options bought before takeover chatter left position 'in the money' as Warner shares surged on reports of a Paramount Skydance bid
An unidentified Wall Street trader realized a multimillion-dollar paper gain after purchasing a large block of call options on Warner Bros. Discovery just hours before reports that Paramount Skydance was preparing a takeover bid for the media company.
Bloomberg News reported that the trader spent nearly $6 million just after 11 a.m. ET on Thursday to buy 100,000 call option contracts when Warner shares were trading at about $13.10. The contracts gave the buyer the right to acquire 10 million shares at a $15 strike price before the options expire on Dec. 19, according to the report. The investor later sold roughly $41 million worth of Warner shares, an apparent hedge of the options position.
The Wall Street Journal reported that Paramount Skydance is preparing a bid for Warner Bros. Discovery, a development that triggered a sharp intraday rally in the company's stock. Warner shares surged more than 35% following the Journal's report and closed at $16.17 on the Nasdaq, up about 28% from the opening bell on Thursday.
Because the strike price on the purchased calls was $15, the rise in Warner's share price put the options "in the money," meaning they could be sold or exercised for a profit. Bloomberg's analysis estimated the trader's paper profit at a minimum of $4 million and as high as $6 million, depending on execution and market conditions.
Warner Bros. Discovery owns cable network CNN and a broad portfolio of film and television assets. The reported interest from Paramount Skydance follows Skydance's recent merger with Paramount, which closed on Aug. 7 and combined Skydance's production arm with Paramount's portfolio that includes CBS, MTV and Nickelodeon.
The Journal's reporting said members of the Ellison family are involved in preparing the potential bid. David Ellison is chairman and chief executive of Paramount Skydance, and the report said his father, Oracle co-founder Larry Ellison, and other family members are helping with the effort.
Market participants often use options to speculate on or hedge against sudden moves in share prices. Buying calls gives an investor leveraged upside exposure with a limited downside equal to the premium paid, while simultaneous stock sales can reduce directional risk. In this case, the trader's combination of options purchases and share sales produced a large notional exposure that moved quickly into profit after takeover speculation pushed the stock higher.
Traders and investors typically watch takeover rumors closely because they can produce swift and substantial price moves. Warner's late-morning move on Thursday illustrates how market-moving news and trade timing can produce outsized gains for participants who enter large, concentrated positions shortly before a report that affects investor expectations.
Warner Bros. Discovery did not immediately comment on the report about a potential bid. Paramount Skydance and representatives linked to the Ellison family also did not issue immediate statements. Bloomberg and the Wall Street Journal were the primary outlets reporting on the options trade and the potential takeover discussions.