The High-Stakes Gamble: Aurelia's Derivatives and Mediobanca's Merger Crossroads

The upcoming September 25 shareholder vote at Mediobanca (MT.MI) is shaping up to be one of the most consequential moments in European banking this year. For investors, the stakes are high—but for Aurelia, the entity holding a significant position in Mediobanca's derivatives, the outcome could mean the difference between a manageable profit and a liquidity crisis. Let's dissect how the merger's binary outcome creates an asymmetric risk exposure for Aurelia, and why investors should tread carefully until the dust settles.

The Merger's Binary Bet: Approval or Collapse?

Mediobanca's proposed merger with Banca Generali's private banking arm is a lifeline against a hostile €12 billion takeover bid from Banca Monte Paschi di Siena (MPS). The deal hinges on shareholder approval, requiring a simple majority (51%) to proceed. However, opposition from key stakeholders—including Delfin (20% stake), Caltagirone (10%), and UniCredit's Andrea Orcel (1.9%)—could tip the scales against approval.

If rejected, Mediobanca's stock, currently trading at €15.30, faces a potential 20–30% drop. Conversely, approval might stabilize the price near €15–€16, far below the strike prices of Aurelia's put options. This creates a high-risk, low-reward scenario for Aurelia, whose derivatives positions are structured to lose significantly if the merger fails but gain modestly if it succeeds.

Aurelia's Derivatives: A Recipe for Asymmetric Risk

Aurelia's exposure is twofold:
1. Put Options Sold:
- 100,000 shares with a €20 strike (expiring Dec 19, 2025).
- 250,000 shares split between €17.50 and €17.00 strikes (expiring Apr 17, 025).
- Risk Exposure: If Mediobanca's stock plummets post-rejection, Aurelia must buy shares at the strike prices, incurring losses. At the current €15.30 price, a rejection could force Aurelia to buy €20 options at a loss of €4.70 per share. With 350,000 total options, this translates to a potential €1.645 million loss—before considering liquidity strains from its mining ventures like Great Cobar.

1. Upside Ceiling:
   Even if the merger passes, the stock's stabilization at €15–€16 means Aurelia's puts will expire unexercised. Its maximum gain would be the premiums collected—roughly €2.30 per option—capped by the lack of upside movement. This asymmetry tilts the risk-reward profile heavily against Aurelia.

The Opposition's Power Play

The opposition bloc, controlling nearly 30% of shares, has already secured the leverage needed to block approval. Cross-invested families like Del Vecchio and Benetton, who hold stakes in both Mediobanca and Assicurazioni Generali, are delaying their votes until Generali's stance crystallizes. Their abstentions could tip the vote further against the merger.

Meanwhile, the ECB's looming scrutiny adds another layer of risk. The central bank may reject the deal due to Mediobanca's €3.3 billion in non-performing loans, even if shareholders approve it. This regulatory overhang compounds the uncertainty.

Investment Strategies: Navigating the Volatility

The September 25 vote is a binary event, but investors can mitigate exposure:

1. Bullish on Merger Approval:
2. Buy Mediobanca shares (target €18–€20) and sell call options to hedge against overpayment.

3. Risk Management: Use stop-loss orders at €14 to limit downside if opposition surprises.

4. Bearish on Merger Rejection:

5. Short the stock (target €12–€13) and buy put options at lower strikes (e.g., €15) to amplify gains.

6. Caution: Avoid overexposure to Aurelia's derivatives; their asymmetric risk makes them a poor proxy for the broader market.

7. Neutral/Hedged Play:

8. Avoid direct exposure to Mediobanca. Instead, invest in broader European financial ETFs like EUO (ultra-short) or EUFN (Financials ETF) to capture sector trends without merger-specific risk.
9. Use inverse ETFs or put spreads to capitalize on volatility without taking directional bets.

Final Call: Wait for the Smoke to Clear

The data and dynamics paint a clear picture: Aurelia's derivatives are a high-risk, low-reward proposition, especially if the merger fails. Until September 25, investors should prioritize liquidity and avoid overcommitting to either side of the bet.

The merger's rejection would trigger a liquidity crunch for Aurelia and open the door to MPS's hostile bid. Approval, while stabilizing the stock, offers little upside for Aurelia's puts. Investors are better served by waiting for clarity—then pivoting based on the outcome.

Final Recommendation: Adopt a wait-and-see approach, use hedging tools to protect capital, and avoid overexposure to either side until the September 25 vote concludes. The risks here are too lopsided to justify aggressive bets.

Stay informed, stay cautious, and keep your powder dry until the merger's fate is sealed.