Amir Khamidullin

1. Overview

In December 2024, the Wall Street Journal (WSJ) reported that Warner Bros. Discovery (WBD) planned to restructure the company into two divisions: legacy cable TV and streaming. At the time, CEO David Zaslav claimed that this shift would support the company’s future growth and better align with its goals.

On June 9, 2025, WBD announced plans “to separate the company, in a tax-free transaction, into two publicly traded companies, enabling each to maximize its potential”. The management is planning to split WBD into two companies: “Streaming & Studios” and “Global Networks.” The former will consist of Warner Bros. Television, Warner Bros. Motion Picture Group, DC Studios, HBO, and HBO Max, as well as their legendary film and television libraries, while the latter will include premier entertainment, sports and news television brands around the world including CNN, TNT Sports in the U.S., and Discovery, top free-to-air channels across Europe, and digital products such as the profitable Discovery+ streaming service and Bleacher Report (B/R).

Later, in early September, Paramount Skydance (PSKY) was in the process of preparing a bid for the entire company, not just some of its divisions. WBD jumped by about 54% in the three trading days. This prompted rounds of bids from major players in the industry. Paramount Skydance, Comcast (CMCSA), and Netflix (NFLX) all submitted their bids to the firm, which rejected them all and set a deadline for the second round due December 1. According to Variety, the company will consider proposals in which the Warner Bros. business (HBO Max and studios) is sold separately from Discovery Global, the TV-centric company, which aligns with Warner Bros. Discovery’s already-underway plan to split into two companies by April 2026.

Now, the question is – who is likely to win the bidding war and pass the regulatory scrutiny? Is there any evidence in the derivatives market that can give any hint on whether the deal will go through?

2. Stock Market Expectations

Since September 2025 (when the first news of possible bids hit), the following stock performance has been observed:

WBD: up by 106.54% from $11.62 to $24

Market Capitalization: 59.4B; Debt: 33.52B; Debt/Equity: 89.86%

There is strong positive feedback from the market that the possible acquisition is likely to benefit WBD. The offer by PSKY was at $23.5/share with 80% cash and 20% stock. The current price of WBD at $24, which is already above the previous offer, gives a sign that the firm might be worth much more, and bidders are likely to pay even a higher premium.

PSKY: up by 11.1% from 14.42 to $16.02. When the PSKY preparation of the bid was announced (September 10) the stock jumped by about 25% from $15 to $18.74.

Market Capitalization: 17.1B; Debt: 14.73B; Debt/Equity: 111.02%

This jump in both PSKY and WBD stock price favors Paramount Skydance as the possible acquirer of the communication service and entertainment company. The market positively assesses the possibility of this takeover. David Ellison (CEO of PSKY) appears to have a close relationship with President Donald Trump and benefits from the immense financial backing of his father, Larry Ellison. Despite strong market enthusiasm, it is important to recognize that PSKY is a relatively small company attempting to acquire an asset far larger than itself. With Debt/Equity already above 110%, PSKY would be taking on a transaction that is enormous relative to its balance sheet. A full takeover of WBD would almost certainly require substantial external support — most realistically a direct capital injection from the Ellison family and significant refinancing of existing debt.

NFLX: down by about 11.1% from $121 to $107.58.

Market Capitalization: 455.85B; Debt: 17.08B; Debt/Equity: 65.82%

Netflix, as opposed to Paramount Skydance, is only bidding for WBD’s studio and streaming business. The participation in the bidding war is not the only reason for the NFLX stock decline. There have been many other events related to the streaming company that have impacted its performance in the market. However, the stock dropped by around 4% on November 19 when a Morgan Stanley analyst questioned NFLX’s potential acquisition of WBD and argued for difficulties in regulatory approval as well as small synergy gains.

CMCSA: down by about 26.5% from $33.75 to $26.69.

Market Capitalization: 97.62B; Debt: 99.06B; Debt/Equity: 101.46%

The firm faced a number of troubles, including a structural decline in cable TV, loss-making streaming services Peacock, a margin decrease, and investors’ rotation out of slow media names into AI/high-growth sectors. Like NFLX, Comcast is looking to acquire only the studio and streaming division. The debt of CMCSA is at a record $99 billion level with a Debt/Equity of about 101.46%. High leverage, coupled with Trump speaking “negatively about Roberts and the company — which owns the left-leaning TV network MS NOW — in the past”, makes it clear Comcast is unlikely to become a successful bidder in this war.

All in all, it seems that Paramount Discovery possesses the highest chance of acquiring WBD. It:

1. bids for the whole company

2. has a potential for significant financial backing,

3. is unlikely to see tough regulatory scrutiny,

4. presents clear synergies from the merger with WBD for both parties,

5. experiences positive gains in the stock market.

3. Volatility Skew

Options markets often provide early signals of investor expectations about major corporate events, including restructurings and acquisitions. Because options embed forward-looking risk assessments, patterns in implied volatility (IV), especially across multiple expirations, can reveal how traders are pricing potential outcomes long before any announcement is made. In the case of WBD, the IV skews across short-dated and medium-dated options show meaningful patterns that align with rising market speculation about a potential acquisition.

December 5 Options Expiration: The earliest expiration exhibits a highly irregular “two-tail” structure, with elevated IV in both deep-out-of-the-money (OTM) calls and puts. This pattern is typical when the market anticipates a binary event but lacks directional clarity. Traders hedge both upside and downside tails, causing short-dated IV to spike disproportionately.

The market expected something potentially significant, but had no conviction on whether it would be positive (acquisition premium) or negative (restructuring, credit concerns).

December 26 & January 2 Options Expirations: IV becomes asymmetric, with a clear upward slope on OTM calls around strikes 26–29. Put IV declines or flattens, while ATM IV compresses. This produces a distinct “deal premium” hump on the call side.

This pattern is strongly associated with markets pricing a non-zero probability of an acquisition. The clustering of upside IV in late December and early January expirations suggests traders considered this period to be the most likely window for a potential announcement.

January 16 Expiration: By mid-January, the IV surface normalizes. Both call and put skews flatten into a standard downward-sloping pattern, and ATM IV falls to the lowest levels observed in the term structure.

Markets no longer price a near-term corporate catalyst. The normalization suggests that, unless an announcement occurs in the early-January window, the expected probability of a deal falls sharply thereafter.

Together, the skew and volume patterns paint the following picture:

(1) The market assigns a real probability to an acquisition. This is reflected in the asymmetric IV in late-December and early-January expirations.

(2) Traders are hedging possibilities, not acting on inside knowledge. The small, inconsistent volumes rule out coordinated or informed trading.

(3) The expected timing window for any potential deal is front-loaded. Skews imply that if something were to occur, the market believed it would happen between late December and early January.

(4) After mid-January, the market expects business as usual. The January 16 skew shows complete normalization, suggesting no anticipation of strategic surprises beyond this date.