Will the Netflix-Warner Bros. deal go through? Using options to trade the uncertainty
Netflix (NFLX) has agreed to buy some pieces — the film and streaming businesses — of Warner Bros Discovery (WBD) for $72 billion. The leading streaming giant emerged as the top bidder for Warner Bros outbidding both rivals Comcast (CMCSA) and Paramount Skydance (PSKY) after what felt like a multi-round boxing match. However, this deal is far from being done as this proposed tie-up has significant risk of actually closing as it now dips into the world of antitrust. I want to use options to create income on the emotion that has moved Netflix about 5% lower after this announcement. Netflix has agreed to pay a $5.8 billion reverse breakup fee if the deal does not gain approval. Netflix currently only has about $8.5 billion in cash. Warner Bros Discovery will have to pay a $2.8 billion breakup fee if it decides to call off the deal and go a different route. There remains significant scrutiny about this deal closing, and markets were in price discovery mode on the opening bell after trading down to $97 a share. Investors quickly bought this near 5% dip and ran the stock back to unchanged on the day. Uncertainty creates opportunity. NFLX YTD mountain Netflix, YTD Despite the streaming king’s stock being about 25% off its all-time high, the stock has soared from being cut in half in 2022 when it was trading around $16 a share. And technically, Netflix has tucked under both 50-day and 200-day moving averages and its RSI level is creeping closer to oversold territory with a current RSI level of around 35. I want to sell a call spread as investors will most likely need more time to digest and better understand this deal. The timeline might stretch out for a long time. The Trade (Sold a Call Spread) Sold the $105 1/16/26 call for $4.30 Bought the $115 1/16/26 call for $1.30 Netflix was chopping around $103 when executed An investor will collect $3.00 per spread or $300. An investor is risking $700 in the event Netflix does retrace higher and settle above $115 in January DISCLOSURES: Kilburg sold this NFLX spread. Comcast is the parent company of NBCUniversal, which owns CNBC. Versant would become the new parent company of CNBC upon Comcast’s planned spinoff of Versant. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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