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

The fate of Banca Monte dei Paschi di Siena's (MPS) hostile bid to acquire Mediobanca hinges on a single date: September 25, 2025, when shareholders will vote on Mediobanca's proposed merger with Banca Generali. This vote isn't just a corporate battle—it's a high-stakes gamble for Aurelia, a major Mediobanca shareholder, whose derivatives positions could either secure modest gains or trigger catastrophic losses. For investors, the volatility surrounding this binary outcome presents both peril and opportunity. Let's dissect the asymmetric risks and uncover hedging strategies to navigate this minefield.

The Binary Outcome: September 25, 2025 – The Day That Could Make or Break Aurelia

The September 25 shareholder vote will determine whether Mediobanca merges with Banca Generali, creating a €210 billion financial powerhouse. If approved, this merger blocks MPS's hostile bid, stabilizing Mediobanca's stock near €15–€16. If rejected, the door remains open for MPS's takeover—a scenario that could send Mediobanca's shares crashing by 20–30%, as institutional investors flee and regulatory scrutiny intensifies over its €3.3 billion in non-performing loans.

Aurelia's Derivatives: A High-Risk, Reward-Dependent Position

Aurelia has structured its derivatives portfolio to bet on Mediobanca's undervaluation, but the risks are asymmetric:

1. The Upside (Merger Approved):
2. Mediobanca's stock stabilizes near €15–€16, leaving Aurelia's 100,000 put options at €20 unexercised.

3. Profit: €2.30 per option (totaling ~€230,000) from premiums collected on the €20 strike.

4. The Downside (Merger Rejected):

5. Mediobanca's stock plummets to €12–€13, forcing Aurelia to honor puts at €20.
6. Loss: €4.70 per share on the €20 options, totaling over €470,000, plus exposure to other liabilities (e.g., liquidity strains from its mining venture, Great Cobar).

Asymmetric Risk: Why This Is a Gamble Only for Speculators

• Reward Ceiling: Even in the best-case scenario, gains are capped at €230,000—a fraction of the potential downside.
• Liquidity Risks: Aurelia's ability to honor its obligations hinges on its cash reserves. If the merger fails and its mining venture demands capital, it could default on put options, triggering a liquidity crisis.

For most investors, this asymmetry makes Aurelia's position a high-risk, low-reward bet—ideal only for those willing to gamble on the merger's success.

Strategic Hedging: Capitalizing on Volatility Without the Downside

Investors can exploit Mediobanca's stock swings without betting on Aurelia's precarious derivatives. Here's how:

1. Bullish on Merger Approval:

• Buy Mediobanca shares at €15.30 and sell call options at €21.00 to hedge against overpayment.
• Set a stop-loss at €14 to exit if the stock weakens.

2. Bearish on Merger Rejection:

• Short the stock (target €12–€13) and buy put options at €15 to amplify downside gains.
• Use inverse ETFs (e.g., EUO) for broader European financial exposure, avoiding direct Mediobanca risk.

3. Hedged Neutral Position:

• Avoid direct exposure to Mediobanca/Aurelia. Instead, invest in European financial ETFs (e.g., EUFN) or use put spreads (e.g., buying puts at €15 and selling at €12) to limit downside risk.

Regulatory Risks: The ECB's Shadow Over the Deal

While the ECB has greenlit MPS's bid, it remains skeptical of Mediobanca's €3.3 billion in non-performing loans, which could force deleveraging demands post-merger. Investors should monitor:
- Mediobanca's capital adequacy ratios (e.g., CET1 ratio).
- Shareholder dynamics: Caltagirone (10%) and Delfin (20%) hold 30% of Mediobanca and may demand governance changes or asset sales, further complicating the merger.

Final Take: Proceed with Caution, Hedge Aggressively

• Avoid Aurelia's derivatives unless you're a speculator betting solely on merger approval.
• Focus on hedging: Use ETFs, put spreads, or inverse strategies to capitalize on volatility without overexposure.
• Watch the September 25 vote: This is a binary event—investors should avoid new positions until post-vote clarity emerges.

In a game where one wrong move could mean ruin, the smart bet is to stay nimble, stay hedged, and let others take the asymmetric risks.

Stay informed, stay resilient.