How I Made $5000 in the Stock Market

A Stock Option Trade for the Warner Bros. Sweepstakes

Dec 10, 2025 12:37:00 -0500 by Jacob Sonenshine | #Options

The Warner Bros. water tower is seen at Warner Bros. Studios in Burbank, Calif. (Robyn Beck / AFP via Getty Images)

Key Points

The bidding war to buy Warner Bros. Discovery is creating wild stock-price swings. There is more than one way to take advantage.

Warner stock has been moving since news surfaced at the end of October that Netflix was interested in buying Warner Bros. Netflix said on Friday that it had agreed to pay $27.75 a share for Warner’s studio and streaming assets, which equates to more than $72 billion. That doesn’t include the value of its cable channels, which could add another $3 to $4 dollars to the value, according to the companies.

Even for a company as big as Netflix, it is seen as a risky deal. The stock is down 23% since the news emerged in October, mainly because the streaming business would issue more shares and borrow gobs of money to finance the purchase.

Warner Bros. is up almost 40% from just over $21 before the offer to just under $29. The reason the stock is now above Netflix’s offer price is because Paramount Skydance has raised the ante, coming in with a bid of $30 a share for all of Warner, including the global cable operations.

Now, the market is assuming that someone will purchase Warner Bros. for at least $27.75 a share, and possibly $30 or more.

Gaming out exactly what will happen is difficult, but betting on the probability that Paramount will offer more than $30 is plenty reasonable. BMO analyst Brian Pitz emphasizes in a note that Paramount CEO David Ellison said $30 wasn’t necessarily his company’s best and final offer. This “suggests Paramount could sweeten its $30 bid to get a deal done,” Pitz writes.

If betting on a price of $30 or greater is reasonable— Barron’s believes it is—the question is how to do so. Buying a share of Warner Bros. stock outright would cost a bit more than $28, and a gain to $30 would represent a profit of only about 7%. It would be a bit less than 11% at $31.

Buying call options has the potential for bigger gains. Call options expiring on Jan. 16 sell for $2.70 and have an exercise price of $27 per share, according to Cboe data. Holders have the right, but no obligation, to purchase a Warner Bros share for $27 until Jan. 16. If the stock reaches $31 in the case that Paramount increases its offer, for argument’s sake, the call owner can buy at $27 and immediately sell at the $31 market price.

That equates to a $4 payoff, repenting a large profit, given the price per call of $2.70. It’s a near 50% gain in less than two months from today.

The best part is that the call owner doesn’t have to lose much money if the above scenario doesn’t play out. If the stock doesn’t reach that high, or even drops below $27, the investor doesn’t have to exercise the option, losing only $2.70 per call.

Traders who want to take more risk, with the potential for higher returns, can pair that trade with Netflix stock outright.

If Paramount wins the sweepstakes, Netflix stock could surge higher, given that the market doesn’t want to see the streaming company buy the movie studio.

Netflix, now at just over $96, could head back to the level near $124 it sold for just before the late October news about a potential deal. That’s a 29% gain.

Holding Netflix stock beyond January would mean owning a company that has consistently increased its profits but wouldn’t have made a risky acquisition.

That’s a video we’d like to catch.

Corrections & Amplifications: Netflix’s $27.75 bid for Warner Bros. doesn’t include the cable assets, so it isn’t comparable to Paramount Skydance’s $30 offer. An earlier version of this article incorrectly said Paramount’s offer was higher.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com