TGIF – Middle East Madness Continues

Limited attacks! 

Is this the new way of fighting wars now – with symbolic attacks? Last night, Israel conducted a targeted strike near Isfahan, Iran, in retaliation to Iran’s large-scale drone and missile attack on Israeli territory. The Israeli action was focused on military and possibly nuclear-related facilities in Isfahan, a city that holds significant military infrastructure including air defense systems and nuclear facilities. The strikes were described as narrow to avoid escalating tensions into a broader conflict. 

Iranian State Media played down the incident and that sent oil back to $81.25 this morning – despite the “escalation” into the weekend. I’m no diplomat but I’d like to suggest the possibility of NOT taking pot shots at each other – just as a start towards a peaceful resolution…

• • Oil (/CL) Futures can be played bullishly from here ($81.25) into the weekend as it would take little more than a sneeze in the wrong direction to punch up back to $85 and that’s a potential $3,750 per contract gain and, if you set a stop below the $81 line – the loss is limited to $250 per contract – a very nice risk/reward ratio! 

The strike was likely intended as a warning and a demonstration of Israel’s capability to breach Iranian defenses, highlighted by targeting areas protected by advanced air defense systems, representing an ongoing strategic pattern where Israel aims to deter Iranian aggression without triggering a full-scale war – a delicate balance indeed!  

The risk of miscalculation remains high, with potential for escalation if further provocations occur. The international community’s response and diplomatic engagements in the coming days will be critical in either escalating or de-escalating tensions. The ongoing situation demands close monitoring as developments can significantly impact regional stability and global market sentiments.

Meanwhile, for those of us who’d rather be distracted, Netflix (NFLX) added 9.3M subscribers in Q1 but they spooked traders by announcing they will no longer report subscriber counts and will focus on “engagement”, which is nonsense as advertisers live and die on those subscriber counts. NFLX is down 6.6% at $570 pre-market – yet another blow to the beleaguered Nasdaq.  

$570 is still $250Bn and NFLX aims to make $7.5Bn (33.3x) this year after making $5.4Bn last year so it’s good growth but, with 250M households and about 500M viewers (but who’s counting? Not Netflix!) – where’s the growth going to come from. 9.3M new users (1.8%) is barely enough to move the needle and that number came as Netflix cracked down on password sharing so (and this is a coincidence, I’m sure) the last subscriber growth number they are releasing is the one that has been artificially goosed by a one-time rule change – very convenient!  

• • Meanwhile, Paramount Plus has 67.5M households, which is 27% of NFLX but you can buy all of PARA (with $30Bn in revenues vs NFLX’s $38Bn) for $7.2Bn at $11 – that is just silly! We already have lots of PARA in our Member Portfolios (see this week’s review) and we expect to be taken out between $18 and $20 so, even without options – this is a very potentially profitable trade idea! 

Paramount Global (PARA) is led by controlling shareholder Shari Redstone, who faces a critical decision regarding the sale of the Redstone family’s holdings to producer David Ellison, which would involve merging Paramount with his Skydance Media. Despite owning less than 10% of the total shares, the Redstone family controls 77% of the voting stock, giving them significant power over such decisions without necessarily requiring consent from the majority of shareholders who hold non-voting stock.

The potential deal, which might include a $2 billion transaction for the Redstones’ holdings and a merger valuing Skydance at around $5 billion, is contentious among some shareholders who feel it may benefit the Redstones disproportionately. There has been a recent Delaware court ruling, which has increased pressure to require such deals to be conditioned on approval by both a special committee of independent directors and a majority vote by noncontrolling shareholders to ensure fairness and avoid litigation.

The involvement of other major players such as Sony Group Corp and Apollo Global Management Inc., who are considering a joint bid, introduces the possibility of a bidding war, which could potentially offer more favorable terms to all shareholders. The risk is that, without a shareholder vote, the deal is likely to face legal challenges that the interests of ordinary shareholders are being sidelined, potentially leading to a costly and prolonged legal battle. THAT is what is keeping the price so far below the offers.

For an options trade, there’s inherent value in PARA at $11 so I have no problem promising to buy 1,000 shares for $10 by selling 10 of the 2026 10 puts for $2 ($2,000) in this options spread: 

• • • Sell 10 PARA 2026 $10 puts for $2 ($2,000) 
    • Buy 20 PARA 2026 $10 calls for $3.65 ($7,300) 
    • Sell 20 PARA 2026 $15 calls for $2 ($4,000) 

That’s net $1,300 on the $10,000 spread so there’s $8,700 (669%) upside potential if PARA is bought for more than $15 and a nice bonus there is, if they are bought before 2026 – you cash in early!  

Have a great weekend, 

• • Phil