Aurelia’s Call Option Strategy on Mediobanca: A Calculated Hedge or a Risky Roll of the Dice?

Aurelia Srl, a key shareholder in Italy’s banking sector, has taken a bold position in the derivatives market by selling call options on 150,000 Mediobanca ordinary shares (125,000 at €18.00 strike and 25,000 at €16.50 strike), both expiring in May 2025. These transactions, linked to Banca Monte dei Paschi di Siena’s voluntary exchange offer for Mediobanca shares, raise critical questions about Aurelia’s strategy, the risks involved, and the broader implications for investors.

The Deal: Premiums, Strikes, and Market Context

By selling call options, Aurelia has secured upfront premiums totaling €61,250 (€0.40 × 125,000 + €0.45 × 25,000) while retaining obligations only if Mediobanca’s shares exceed the strike prices by expiration. At the time of the announcement, Mediobanca’s shares were trading at €18.37 and €17.065, respectively—above both strike prices, meaning the options were out-of-the-money. This setup allows Aurelia to profit from the premiums if the options expire unexercised, but exposes it to potential losses if shares rise sharply.

A chart showing Mediobanca’s share price trajectory against the €16.50 and €18.00 strike prices, highlighting volatility around Banca Monte’s exchange offer.

Strategic Implications: Hedging, Liquidity, or Speculation?

The move could reflect several motives:
1. Liquidity Generation: The €61,250 in premiums provides immediate cash, which may fund Aurelia’s broader initiatives, such as its Great Cobar copper-gold project (targeting $91.8 million in investment by 2028).
2. Position Sizing: Aurelia’s derivative holdings now account for 4.9% of Mediobanca’s capital, just below the 5% threshold requiring regulatory disclosure. This suggests a deliberate avoidance of triggering transparency obligations under EU Market Abuse Regulation (MAR).
3. Market Sentiment: By selling call options, Aurelia signals confidence that Mediobanca’s shares won’t surge beyond the strike prices by May 2025—a view possibly influenced by the Banca Monte exchange offer, which could stabilize or depress Mediobanca’s stock price.

Risks and Contingencies

• Execution Risk: If Mediobanca’s shares rise above €18.00 or €16.50, Aurelia must sell the shares at the strike price, forgoing potential gains. With the stock already trading above both strikes, this scenario is plausible if the merger gains momentum or macroeconomic conditions improve.
• Volatility Traps: The banking sector is highly sensitive to regulatory shifts and economic cycles. A sudden rally in financial stocks—driven by rising interest rates or geopolitical stability—could force Aurelia into unwanted sales.
• Regulatory Uncertainty: The Banca Monte exchange offer’s outcome remains uncertain. If rejected, Mediobanca’s stock could drop, rendering the options worthless—but also leaving Aurelia’s position vulnerable if the shares rebound later.

Aurelia’s Broader Financial Position

Aurelia’s decision is not made in isolation. Its $106.7 million cash balance (as of Q1 2025) and cash-over-debt structure provide a buffer against short-term risks. However, its 65.9% year-to-date stock decline underscores investor skepticism about its ability to execute on ambitious projects like Great Cobar. The call options’ premiums may be a tactical move to offset this underperformance, but they do little to address core concerns like rising operating costs ($4.5 million increase in Q1) or project execution delays.

The Bigger Picture: Mediobanca’s Role in Italian Banking

Mediobanca’s shares have been volatile amid Banca Monte’s €5.3 billion exchange offer, which seeks to consolidate Italy’s banking sector. The offer’s success hinges on regulatory approval and market conditions, both of which could influence share prices. Aurelia’s options effectively bet that the merger will not trigger a significant Mediobanca rally—a stance that could backfire if the deal accelerates growth or stabilizes the bank’s valuation.

Conclusion: A Prudent Hedge or a Gamble?

Aurelia’s call option strategy appears prudent in the short term, leveraging low-volatility premiums while maintaining flexibility. The €61,250 in upfront gains and 4.9% stake threshold suggest a tactical move to bolster liquidity without regulatory scrutiny. However, the risks are substantial: a surge in Mediobanca’s shares could force Aurelia into unfavorable sales, undermining its financial flexibility.

Investors should monitor Mediobanca’s stock performance relative to the €18.00 strike, the progress of Banca Monte’s offer, and Aurelia’s ability to execute its Great Cobar project (targeting 1.1 million tonnes of processing capacity by 2026). For now, the strategy balances opportunism with caution—but the dice remain in the air until May 2025.

Final Take: Aurelia’s call options on Mediobanca are a calculated risk, capitalizing on current conditions but leaving significant exposure to merger-related volatility. Investors must weigh the immediate premium gains against the longer-term uncertainty of banking sector consolidation.