The 23-year-old has impressed at The Emirates this season and it is thought Gunners’ boss Mikel Arteta is keen to retain his services.
Ceballos’ loan is due to expire at the end of the season, and Arsenal face competition for his permanent signature.
Valencia are one of the teams in the frame, while Ceballos’ former club Real Betis are also interested.
The La Liga giants are hoping to raise funds for their own movements in the transfer market, and Ceballos does not feature in the plans of Madrid manager Zinedine Zidane.
He still has another three years remaining on his contract with the Los Blancos, but is determined to seek out regular first-team football in a bid to earn a place in Spain’s squad for Euro 2021.
Ceballos has made 32 appearances this season, which included a period of almost three months on the sidelines, and is a key player under Arteta.
That stands Arsenal in good stead to sway the negotiations in their favour should they decide to make an offer, with Ceballos admitted recently he is “happy” in London, despite conceding he was considering a return to Betis.
He told Cadena Ser last month: “Betis? They are an option. I don’t close the door to play for any club and La Liga suits me well.
“But I’m also happy at Arsenal and I have to have respect for them, I am focused on the remaining games.
“My goal is to play next year and it will be difficult at Real Madrid to be playing 40 games and feeling important. This year I have been happy playing and next year I want to do the same.”
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