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Judge David Ryan • Location: Natick, MA
• Member since: July 2004
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The HSX Report -- 5/30/07
May 29th, 2007 10:34PM

Turbulence, thy name is HSX. At least right now. In the wake of Pirates' underperformance, the market is reassessing the values of virtually every blockbuster-potential film out there right now -- including Summer 2008 films.

The Girl from IPOnima
It's Dan Fogler day! I haven't heard from him since "Language of Love" charted back in the mid-'80s... What? Wrong guy? Fogelberg? Well who's this guy then? And why should I drop H$30 on his bond?

Answer: He's got a good resume, but it's not a high gross resume. I'd hold off on DFOGL right now. And while the concept for The Golden Tux (GOTUX) is potentially funny, H$16 is too steep a price.

As for the other IPO today, Repo! The Genetic Opera (REPOG).... I don't know what to say. No? Never? Avoid like herpes? My vocabulary fails me.

No feature today -- just a stock tip. Take a look at Nights in Rodanthe (NRODN). Terrible name, true. And it's quite a bit away from release -- almost exactly a year, actually -- but I sense a decent mid-level feature here. It's not going to pull in $150M at the box office... but at H$26, I think there's good profit potential there for the buy and hold investor.

Keep the faith. Excelsior!

The HSX Report -- 5/29/07
May 29th, 2007 10:21PM

Due to externally-imposed time constraints, the HSX Report will not be seen today. It will return tomorrow in its usual time slot. Please enjoy this rerun of "Maude" instead, and thank you for your understanding.

The HSX Report -- 5/28/07
May 28th, 2007 8:01PM

Today's topic: The Monday Afternoon Hangover

Well, the Memorial Day Weekend numbers are in for Pirates of the Caribbean: At World's End... and from an HSX standpoint, it's a bloodbath. Although the film did well, it didn't do nearly as well as projected, leading to a downward adjustment of almost 25%. Which equates to a whopping H$43.93 downward adjust. From a personal perspective, that's H$2.19M of my portfolio value wiped out in an instant. Ouch.

More important for HSX traders is what this means for the 2007 summer blockbuster season. As I wrote before, Pirates should serve as a bellweather for the season. So what have we learned? I think we've learned that Spider-man 3 and Shrek the Third, whose B.O. results were roughly in line with Pirates, probably show us what to expect for the rest of the year. The strong openers should adjust to the H$300-350 range, equating to opening weekend tallies in the $110M range. A H$400 stock probably isn't on the horizon this year, although Transformers -- which shouldn't suffer from possible sequel-itis like the aforementioned three films -- might have that sort of potential.

Also important for HSX purposes -- although it's a short run issue and not a seasonal bellweather -- is the second weekend performance of Shrek the Third. It took in a four-day total of $69M, including $53M in the Friday-Sunday period. Typically, a film's box office falls by anywhere between 40-60% in its second weekend; Shrek 3 is apparently no different, showing a 56% dropoff. What does this mean for HSXers? It means that SHRK3 is still on pace to delist in the H$320 range, so there's no current arbitrage potential there.

The other new opener, Bug, finished just where HSX predicted it would, at about $4M in box office.

What to do when you've just lost 25% of the value on your H$400 stock (and the gain you could have had on the call option, had you sold it on Friday)? Pick yourself off, dust yourself off, and keep writing your HSX blog, that's what!

Back to the daily grind tomorrow. Excelsior!

The HSX Report -- 5/25/07
May 24th, 2007 11:00PM

Today, penny stocks! But first... the IPOs.

The Girl from IPOnima

(1) South of the Border (SOTBR) -- H$20
Is it the dramatic tale of the last place in South Carolina to buy fireworks? No -- it's a Disney live-action film about a chihuahua who has to find his way home with the help of his friends. Haven't we seen this film about 20 times in the past... oh... year? Nothing to see here... move along.

(2) Hurricane Mary (HMARY) -- H$15
The blurb gives us very little in the way of plot detail -- it's about twins, and their parents, and disabilities. Beyond that, who knows? But the star power is impressive. I'd say go for it.

And this week's Saturday IPO...

(3) Justice League (JLEAG) -- H$50
Looks good, eh? The next Spider-man! Well... be careful. There are a LOT of comic book properties out there on the market. Not all of them are going to be huge hits. Remember Daredevil? Superhero stocks are among the hardest calls in the market right now. Some of these films are going to be the next Spider-man, shooting up to the H$200s and H$300s. But many of them will drop to ridiculously low levels as interest in actually making the film wanes. Here's how these films typically play: there will be a bump after the IPO, then things will hold steady for a while as we wait and see whether there's any real action taken with respect to the potential film (i.e. is someone writing a script, is a director in negotiations to join on, etc.). The less action, the lower the price goes. If someone big signs on, the price skyrockets. But you just don't know. Justice League is an even bigger puzzle. You're going to have to have Superman, Batman, Wonder Woman, and so on -- and many of those characters already have separate franchises going on. It seems like a big undertaking to get all this film's ducks in place. But if it all works out, the film could be huge. A tentative, cautious, and fairly uncertain buy -- but don't be surprised if you lose your shirt. It's a gamble.

And a rare Sunday IPO....

(4) Power and Glory (PWRGL) -- H$20
A non-DC, non-Marvel comic book (er, sorry -- graphic novel) gets the big screen treatment. Worked well for Hellboy... I don't know much about Howard Chaykin, but I'm encouraged by what little I've read about him. My only exposure to his work was the Marvel adaptation of Star Wars, which was early in his career. But this plot sounds intriguing, and H$20 isn't a bad price to pay. Strong buy!

On to today's feature....

The Wonderful (Speculative) World of Penny Stocks

So you're new to HSX, and you don't have a lot of money, but you want to make a lot of money. Except you can't afford to buy massive quantities of H$200 blockbusters. What's a person to do? Well, there are opportunities for mind-blowing gains out there, if you know where to look and if you're willing to spend some time with it. It's the land of "penny" stocks. I'm going to define a "penny stock" as a stock that trades for H$5 or less, but bargains are available even up to the H$15 range, and there are plenty of opportunities for under H$1. The only rule here is this: only go for penny stocks that are in the concept or development phase. You can take a flyer on production-phase pennies, but bear in mind that they could be that cheap because they're destined to head straight to video or cable. If it's a wrap or release phase penny stock, it's definitely that cheap for a reason. So your job, as the penny stock investor, is to comb the "C" and "D" phase stocks for value. How can you spot value? Well, if you read the description for the film and say, "You know, I think that's a film that people would want to see if it ever gets made", you could have value on your hand. As an illustration, let me tell you a little story.

Once upon a time there was a boy named Speed Racer. He had a cheaply-produced and crudely-drawn anime show in the 1970s that, all in all, wasn't that bad. One day, some buzz began in Hollywood that Speed's story was going to be brought to the big screen in a live action feature. A MovieStock (SPDRC) was duly issued, at H$10, as a concept stock. The buzz quieted down, and the stock's sunk into penny range. You could have had it for under H$2. Then, a pair of brothers named Laurence and Andrew, who liked the cartoon, thought that they might want to make this movie. So they signed on to produce and direct it. Oh, did I mention that Laurence and Andrew have done a couple of other films together? Like, for example, The Matrix?

When the Wachowskis picked up the project, Speed Racer's share price rocketed up faster than Racer X around a banked turn. SPDRC currently trades at H$79 or so; by the time of its release next summer, it will probably be double that. Had you played the penny game, you could have had it at H$2!!!! Your H$100,000 investment to max out your holdings could have netted you a profit of H$3.8M now, and possibly something like H$6.9M by next year. THAT is how you make big money in HSX. (As an aside, I think that SPDRC is a buy at H$79... this one's going to be big, I think.)

So what are some examples of potentially huge stocks that are currently languishing in the penny range? First, a bit of illustrative history. Once upon a time, the Powers That Be at HSX were extremely liberal in dishing out concept stocks for projects that didn't even rise to the level of "rumored". For example, there was a Monica Lewinski Story concept stock issued around the time of that whole mess in '98 or so -- there was no project, it was just guessed that somebody might at some point come up with a plan to film her story. Many of these concept stocks were just famous TV shows or movies that HSX thought were candidates for filmic treatment (or, in the latter case, remakes). A lot of them are still out there, too, sitting relatively unnoticed in pennyland.

Here are just a couple of blockbusters-waiting-to-happen, should someone decide to make them reality:
(Full disclosure: I am invested to the maximum in all of these stocks.)

(1) Hawaii Five-O (HW5O) -- H$0.68
This property -- which was tied up in Jack Lord's estate for a long time -- doesn't even have a studio. But SOMEBODY will make a Hawaii Five-O motion picture. What if it's Michael Mann? What if it's Quentin Tarantino? Even if it's B-list talent, the name alone will guarantee box office.

(2) Without Remorse (WOREM) -- H$6.34
Two weeks ago, this stock was trading at H$0.25. The Tom Clancy phenomenon has quieted down in the past couple of years, but he's too popular to ignore. WOREM -- a straightforward revenge tale that will have broader appeal than Clancy's usual technowar stories -- will be made sooner or later. Count on it. It's still worth buying at H$6... but if you had bought it two weeks ago, you'd be sitting pretty already. (I don't know why the stock has spiked so dramatically; I have to assume that there was a story concerning its development in one of the trades.)

(3) The Vega Brothers (VEGAB) -- H$0.37
Right now, VEGAB exists solely within Michael Madsen's ego. He's been telling everyone for a couple of years now that QT should develop the brothers Vega (Vincent from Pulp Fiction, Vic from Reservoir Dogs) into a spinoff. Nothing has come of it. However -- and here's the kicker -- Tarantino isn't averse to the idea. With the failure of Grindhouse and the increasing view that he's becoming less relevant as a director, QT might want to go back to the well and dig this sure-to-get-attention project out. (I'll go into why I knew Grindhouse would fail, and how I made a buttload of money shorting it, in a future blog. Stay tuned!)

(4) Red Rabbit (REDRB) -- H$0.86
See #2. Sadly, I bought in at H$30.21....

(5) Bullitt (BULIT) -- H$0.79
Wolfie Peterson wants to remake McQueen's biggest film. At some point, the studios will let him. It will probably be a disaster... but it will make money.

That's it for now. The Report will return Monday as we wait with bated breath for Pirates' weekend BO.... Excelsior!

The HSX Report -- 5/24/07
May 23rd, 2007 10:16PM

It's Pirates Day!!!

Shrek 3 and Spider-man 3 notwithstanding, the summer movie season really kicks off today, with the opening of the Memorial Day weekend film, Disney's Pirates of the Caribbean: At World's End. Pirates, with its massive media blitz and five-day holiday weekend open, will be the bellweather for this summer's box office. Were the better than expected opens of Shrek and Spidey flukes, or are we on course for another record-setting summer? Millions of H$ are riding on this outcome.... Well, we'll know by Monday night.

The rising tide of expectations seems to be floating all the boats, too, as my highly diversified portfolio had one of its best non-adjust-day gains in recent memory, up about H$1.2M. Of course that's less than half a percent return... but I'm not complaining. The biggest movers were some of the big upcoming summer films, too -- Transformers, FF: Rise of the Silver Surfer, Evan Almighty, and Knocked Up were all signficant Wednesday movers. Knocked Up's move reflects something you will occasionally see on HSX: the market pricing a stock to reflect its option. In this case, KNCKD's derivatives priced out at a $30M open; the stock duly moved up until its price reflected a $30M open, i.e. about H$87. The most interesting mover, though, was the 136% rise in the perpetually-in-development remake of The Secret Life of Walter Mitty, caused by news that Mike Myers may be interested in picking up that baton. Also moving up is Bruno, Sacha Cohen's Borat follow-up, buoyed by news that Cohen is actually in the process of filming it. (Many doubted he could pull off another faux-persona film after the attention showered on him after Borat; apparently, he can.)

The Girl from IPOnima

Two stocks an a fund today. In honor of that, today's topic du jour will be the HSX mutual fund scene. But first....

(1) Part-Time Pirates (PTPIR) -- H$25
I hate these kinds of IPOs. Here's a clever premise -- disgruntled employees raid their bosses' yachts -- with absolutely nobody attached, except Frank Coraci, the director of Click. I give you two options: one, the film stars Dave Chappelle and Topher Grace, with Tom Hanks as one of the bosses; two, the film stars Pauly Shore and Daniel Baldwin, with Ringo Starr as one of the bosses. Kinda affects your judgment of whether this stock merits a H$25 price, doesn't it? Everything -- including whether the film is ever made at all -- depends on who's going to star in it. Which we don't have any clue about right now. If it were a $10 stock, I'd say roll the dice. But at $25.... I can't recommend it now. Great premise, though.

(2) The Way Back (WAYBK) -- H$16
And here we have even less info. It's a coming-of-age drama. It has a teen protagonist. Wow, that only describes about half the films made in a given year. It's written by Nat Faxon and Jim Rash of Reno 911 fame, and directed by Shawn Levy. Three guys with comedy backgrounds doing a coming-of-age drama. It might work -- but I'm not going to pay H$16 to find out.

The third IPO is the Independent Film Fund III (INDIE)... which leads us to the topic du jour.

Vanguard this Ain't: HSX Mutual Funds

Mutual funds in HSXland are almost exactly like mutual funds in real life: you're buying a share of a managed fund of securities; your share value reflects the underlying assets of the fund. Unlike real funds, however, shares are not issued in exchanged for capital, which is then invested by the fund. In HSX, the fund manager is given H$20,000,000 to start with, and shares are priced as if they represented 1/1,000,000th of the fund (or, to put it another way, as if only 1,000,000 shares were issued). However, as with all HSX securities, there is no limit on how many shares of the fund can be outstanding. Therefore, your share probably isn't really 1/1,000,000th of the fund. But none of that is relevant, really -- what matters is that your share is valued at one millionth of the net asset value of the fund (including unrealized gains and losses), and the fund delists and cashes out when its assets hit H$100,000,000 (i.e. a share value of H$100).

What does this mean? It means that in practice, mutual funds are like certificates of deposit. All of the non-index funds eventually hit H$100M and delist, it's just a question of how long it takes. It usually takes a while, too. Worse of all, your potential gain is capped at 500%. Therefore, funds are rarely advisable for new or low-balance investors. They're just not a good investment unless you've got more cash than you can deal with. Then, it can absolutely be better to park the cash in a fund vs. letting it sit and gather its 5.25% interest. But for everyone else, why not spend the money on penny stocks (tomorrow's subject du jour), which can return thousands of percent in the same timeframe if luck is with you? Even educated guesses in the concept and develoment market can result in better returns than funds. Unless you're already maxed out on those stocks... which is when you turn to funds.

Don't get me wrong -- funds will make you money. I hold H$11.2M of funds, which have netted me a profit of H$3.9M. That's about a 50% return. So what's the problem? I've had some of these funds for years. It's dependable money, but it's not fast money. Just like a CD.

Funds tend to be "themed" on HSX. For example, today's IPO, the Independent Film Fund, invests exclusively in independent films (or films made by the "independent" wings of major studios, like Fox Searchlight). Surprisingly, you can sometimes parallel the HSX funds to similar real-life category funds. INDIE is an obvious one -- it's a small cap fund. But the HSX funds can get a bit... specific. There are genre funds, which you could view as similar to industry sector funds. And index funds, which track a studio instead of a financial index. But how do you draw a real-life parallel with the Babes Fund? Or the Overexposed Fund?

That's it for today. Tomorrow, we dance! Excelsior!

The HSX Report -- 5/23/07
May 22nd, 2007 10:59PM

Today's topic: technology sucks.

I spent an hour writing up today's blog, and then -- because nothing ever saves itself on the internet -- I lost the entire thing. Hopefully I can remember what I wrote....

The Girl from IPOnima

Two choices today: Bruce Willis as a badass high school principal, or a documentary about the abortion debate. Can you guess which one I recommend avoiding?

Assassination of a High School President (AOHSP) is the former. One problem: it doesn't look like Bruce's character is the real star of the film. Still, Bruce should be back in vogue after Die Hard, so there's potential here. On the other hand, it's still in development (not production), so Bruce could pull out entirely tomorrow for all we know. It's just a hunch, but at H$18, I'm willing to take the risk in exchange for a possible $50M film.

Lake of Fire (LKOFR) is the latter. Avoid like the plague.

Also on tap today are the options for the June 1st openers. Of the three, Knocked Up is probably the safest bet to succeed, but it's tantalizingly priced at a H$30 strike. The market is predicting the film to be right in that range -- which would result in both the call and the put being losers. I think the film will be more successful than the market predicts, and intend to buy up the call. Use your own judgment here. There's no real buzz around the creepy-looking Kevin Costner/Dane Cook Mr. Brooks, priced with a strike of H$15. Barring further information, I'd avoid its options right now. If the call gets up into the H$5-H$10 range, though, I'd think about shorting it. Gracie is about girls' high school sports. Ignore it. Audiences will.

Today's Feature: What the Shizzle?

Welcome to "What the Shizzle?", where I spotlight a stock that's inexplicably priced for some reason. Unfortunately, the market caught up to me before I could run this, and jacked the stock price up H$8.125 yesterday... so my shizzle shout out in the direction of The Simpsons Movie (SIMPS) has less of an impact now. But still... everyone loves the Simpsons, right? Why is this stock so cheap vis-a-vis other blockbuster-potential films of the summer? I think people are worried that this film won't meet the mom-and-pop test: is it the kind of film you can see your mother and father going to see? I think that at this point the Simpsons are so culturally ingrained in society that the film will appeal to a huge audience, not just college kids and young hipsters. Will it do Shrek or Spider-man money? Probably not -- but it could. H$124 is still a deal for this film, I think. And here's hoping this doesn't come back to bite me in July....

See you all tomorrow. As always, comments and suggestions appreciated, either in the Witness Box or via mail. Keep on trading. Excelsior!

The HSX Report -- 5/22/07
May 21st, 2007 11:01PM

Welcome back! Today's topics: your daily IPO fix, and this summer's early blockbusters.

The Girl from IPOnima

Three issues today. The chaff first, before the lone stock of wheat....

(1) Moliere (MOLIE) -- H$3
You had me at "Ludivine Sagnier". You lost me at "French period comedy". Pass.

(2) My Best Friend (MYBFR) -- H$3
You lost me at "delightful French comedy". You never had me. Pass.

Let's face it -- French films open in arthouses, sell $20,000 of tickets, then go straight to DVD. Except for Amalie -- but that's the exception to the rule. Don't spend your H$3 on a stock that could very well delist at H$.03 or so. Three million bucks is a lot if you're opening on 24 screens.

But there's one significant profit item on the docket today.... and it's a StarBond, of all things!

(3) Jonah Hill (JHILL) -- H$30

I have no clue who Jonah Hill is. For all I know he's a saint among men, the next Jim Carrey, or Hitler Jr. What I do know is how to add some numbers and then divide by five. And I think reasonable expected grosses for Knocked Up and Evan Almighty, plus Accepted, plus even a halfway decent showing by Superbad, equals about $45-50M in TAG by Labor Day. Strong buy, if you've got cash to play with. If you're thin, I don't (and never will) recommend tying up cash in bonds.

I may discuss the bond market in more detail in the future, but for now, here's my take: I think it's difficult to make significant returns in StarBond trading unless you read Daily Variety and the Hollywood Reporter. Believe me -- as soon as a star is attached to a near-term project, the StarBond market will immediately reflect it. There is no mid-term in the StarBond market -- either you day-trade the volatility, or you buy and hold when someone's had a run of bad luck and hope they turn it around (think Eddie Murphy or Bill Murray).

Today's Feature: 2007 Summer Blockbusters (Part 1)

Sadly, the time for quadruple-digit returns on this summer's crop of big-ticket films has probably passed -- I think PIRT3 IPOed slightly before the release of the first film -- but all is not lost. Unfortunately for small investors (or HSX newcomers), these securities are trading in the hundreds of dollars, and require significant cash outlays if you want to buy in now. But even small investors can get in on the fun, via the magic of options. But first, let's look at some of the bigger films coming soon to a theater near you...
(Prices are representative prices that were available at some point in the last couple of days -- your mileage may vary)

Pirates of the Caribbean: At World's End (PIRT3)
Price: H$391.86
Release date: 5/25/2007

Why is PIRT3 pushing $400, while SHRK3 is hanging in the H$330s? One reason: PIRT3 will adjust based on the long weekend. So its four-day gross will go into its Monday adjust. However, the multiple used for the adjust is reduced from 2.9 to 2.4. This only happens a couple of times a year, and it's always fun. Right now, the market is predicting a four-day $167M take for Jack Sparrow and his gang. Can the film pull in this kind of money? Sure. Frankly, I wouldn't be surprised if it actually exceeded that. Given the unexpectedly high opens of Shrek 3 and, earlier, Disturbia, could we be on the verge of a $200M opening? You never know. From an investing standpoint, though, this is a dry hole. H$20M is a ton of money to spend to buy into this hand. Even the options are probably priced out of profit potential. But if you own it already, enjoy the ride.

Harry Potter and the Order of the Phoenix (HPOT5)
Price: H$259.22
Release date: 7/13/2007

Are you *^%#@ing me? I can buy in to Order of the Phoenix at H$250? Sign me up. I think this is a case of the market not seeing the forest for the trees. Truth be told, H$250 is probably a fair price for HPOT5. A fair delist price. Potter films have tended to be "leggy" -- they open strong, then linger. But aye, there's the rub -- they open strong. If Shrek 3 made $130M on its opening weekend, won't Harry Potter 5? I've got H$12M that says it will. Just remember one thing: sell immediately after it opens.

Ocean's Thirteen (OCEN3)
Price: H$96.20
Release date: 6/8/2007

The price is pretty much commensurate with Ocean's Twelve, which delisted at H$107. I think it's undervalued, and I'm fully invested... but I'm worried. As near as I can tell, there's zero buzz about this film. Also, it's got stiff competition in Surf's Up on its opening weekend -- a film that's looking better and better the more I see/hear about it. This film could do well and still cause me to lose my shirt... a $25M opening would equal a H$1.2M loss right now. This film is going to depend on building itself up via its reviews, and that's always a risk. Someone hold me, please....

Knocked Up (KNCKD)
Price: H$84.62
Release date: 6/1/2007

Here's your sleeper hit of the summer. First, it has no competition other than week 2 of the Pirates juggernaut to deal with. Second, it's got cross-gender appeal. Third, it's got the etherially hot Katherine Hegl. Fourth, it's another Judd Apatow film, and we all know how well The Forty-Year-Old Virgin did. I'll go out on a limb and say that this film WILL make more than $84M in four weeks. It may not open huge, but I can see it doing steady business as a great date movie.

Surf's Up (SURFS)
Price: H$81.94
Release date: 6/8/2007

I knew nothing about this film until maybe two weeks ago. Now I'm sold on it. It looks like another animated winner from Sony in the vein of Ice Age. Against Hostel II and Ocean's Thirteen, it has the kid market cornered for this weekend, too. If reviews indicate that it will at all appeal to adults... it could win the weekend. Still, this second weekend of June figures to be the most competitive of the early summer weekends. At H$81, the market is looking for a $28M opening right now. I think that's achievable, and there may even be some room for improvement there. Tough call on SURFS.... Tough call.

Fantastic Four: Rise of the Silver Surfer (FOUR2)
Price: H$149.81
Release date: 6/15/2007

The original Fantastic Four film... um... did not exactly duplicate the success of Spider-man. It did, however, make a lot of money -- more than you probably thought. (FFOUR delisted at H$136.) Now, I know that you should never judge a film by a trailer.... but this one looks much better than the original. Plus, its only competition for the weekend is Warner Bros.' dubious Nancy Drew. For all I know the film may be crap, but I think it's going to at least make its $50M on opening weekend. A cautious buy.

Evan Almighty (ALMT2)
Price: H$123.80
Release date: 6/22/2007

I've got no clue. Pros: Steve Carell. Cons: it's been an agonizingly long and expensive production, which usually doesn't bode well. It's also up against an interesting sleeper, the John Cusack/Sam Jackson Stephen King film 1408. If it's not funny, we could have a major catastrophe on our hands. Or, it could have a $175M opening. Like I said, I have no clue.

Live Free or Die Hard (DIE4)
Price: H$134.38
Release date: 6/27/2007

I pick "live free". Yippie kai-ay, mother... um, wait, this is a family blog. Here's another one I'm undecided on. It will probably do well, but I don't see it being an "event" release like Pirates or Spider-man or Transformers. Which probably puts it in the $40M-$60M open range. Hence, there could be some real profit potential here, if the numbers wind up at the high end of that range. Or, it could be just about where it should be. If you put a gun to my head and made me choose... another very cautious buy.

That brings us up to the next holiday weekend, July 4th. The Transformers and beyond tranche of blockbusters will be discussed in a future blog. But first, as promised... how can you make money off of a H$200 stock when you've only got H$2M to play with? The answer:

Opening weekend options!!!!!

The Wednesday of the week before the week a film opens (so about 10 days prior to opening), HSX will offer MovieStock Options for the openers for the weekend following the next weekend. For example, tomorrow we get the option for Knocked Up, which opens the weekend after next. There's a call and a put option for each film. These options -- like real options -- have a "strike price" that is fixed prior to their issuance. It's the same for both the call or the put. They are always offered at H$2.

So what's the play here? When buying an option, you are betting that the weekend gross of the film will exceed (call) or fall short of (put) the strike price of the option. On the Monday after the opening weekend, one option (depending on which side of the strike price the gross fell) will cash out at a value equal to the difference between the gross and the strike price (divided by $1M), while the other cashes out at zero. It's easier to demonstrate using real numbers. Let's take Knocked Up, whose options are set at H$30. If I'm right, and it's the sleeper hit of the summer and pulls in $50M on its opening weekend, its options will cash out as follows:

Call option (KNCCA): H$20 ($50M minus the $30M strike divided by $1M)
Put option (KNCPU): H$0

If I'm wrong, and KNCKD takes in a paltry $6M for the weekend, it goes like this:

Call option: H$0
Put option: H$24 ($30M strike minus $6M actual divided by $1m)

Unfortunately, you can only buy 10,000 of any given option. Still... if you had bet right in these two cases, and bought the max (which would have only cost you H$20,000), you'd have cleared a profit of H$180,000 and H$220,000 respectively. Which raises an interesting point -- don't forget that these options have a cost, which must be figured into your calculation. Hence, the effective strike prices for the KNCKD options -- the real-life grosses that will determine whether you profit -- are actually $32M and $28M for the call and put respectively. Make sure you take that into account in your purchasing decision.

But you can see that options can provide big profits for small money. Typically the HSX powers-that-be will price the option based on the underlying security's trading value, plus a little -- hence, KNCKD, which is trading around H$85-90, gets a $30M strike price, because that's what the market is predicting. Sometimes, though, they get it wrong. Shrek 3, for example, had an option strike of $105M. I think everyone knew that $105M was low for that film. Hence, everyone maxed on the call and shorted the put -- and made a lot of money doing so. Look for these opportunities, and you will do well.

That's all for today. Keep buying low and selling high! And if you have comments/thoughts/questions/suggestions for this blog, please post them in the Cinema Verdict section of the Witness Box, or email me at dryan@dvdverdict.com. Excelsior!


The HSX Report -- 5/21/07
May 21st, 2007 10:29AM

Hello and welcome to the inaugural HSX Report. Which is a terrible name... so if you have any suggestions, please feel free to send them along or post them in the Witness Box. Second, I forgot to mention this last week, but this recurring blog column is the kinda sorta half-debut of Cinema Verdict, our new site devoted to theatrical films, which will be fully and properly launched in the very near future. At that point, this blog will move over there to its permanent home.

Well, with the housework out of the way.... let's look at the weekend. Shrek the Third, predictably, led the pack for the weekend, taking in $122M in box office. Going into the weekend, I thought that SHRK3 was undervalued even at H$302 (it had been trolling around the H$300 mark for a couple of weeks) -- glad to see I was right in that. The H$32 adjust made for a lot of profit, and buoyed the values of both Shrek 4 (SHRK4) and -- wait for it -- my Saturday IPO recommendation, Puss in Boots (PUSNB) PUSNB leaped as high as H$76 on Sunday after its IPO, making for an impressive 25% gain had you followed my investment advice. (And you did... right?) Of course the profit-taking has begun in earnest, with SHRK3 dropping H$8 per share and PUSNB back down to a more realistic H$65. PUSNB remains a hold -- for now -- while you're probably okay giving up your SHRK3. With Pirate Weekend coming up fast, our beloved ogre might have a problem hitting $350M in four weeks.

Free money note: the Calendar is listing two securities that are delisting Tuesday due to a lack of a theatrical release: The Hard Easy (HRDEZ) and The Mistress of Spices (MSPIC). Short them to the max right now. It's small change, but it's free money.

The Girl from IPOnima

Moving on to today's IPOs, we have a tough-to-call pair on our hands:

(1) Mr. Peabody and Sherman (MRPBS) -- H$25
Yet another Rocky & Bullwinkle character gets the cinematic treatment -- this time, it's the smart dog and his pet boy who gave us back-door history lessons and bad jokes. Well... we all know how well the other R&B films turned out. And Peabody/Sherman is a thinner joke than the rest. On the other hand, it's got Stuart Little director Rob Minkoff behind it. I project this out as a kids' film at best, but kids's films can make money. This one's a gamble, and a relatively expensive one at H$25. You might want to wait and see with this one.

(2) Ponyo on a Cliff (PONYO) -- H$5
No, it's not an REM song. It's the latest animated feature from Hayao Miyazaki. Miyazaki's only real commercial success in the US was with Spirited Away, and even that only made $10M. The follow-up, Howl's Moving Castle, didn't even make $5M. Miyazaki's films are beautiful and artistic, but right now, they're not very commercial. Still, if it's any good, and Disney decides to give it a good, hard push, I could see it making $15M. And a 300% return over a year or so isn't a bad return. Buy.

My name is Bond... StarBond

I don't invest in the StarBond market much, because it's too difficult to arbitrage. However, one recommendation came up in the Witness Box, and it happens to be a value buy that I spotted myself. It's Shia LaBoeuf (SLABE). LaBoeuf has two high-gross films -- I, Robot and Constantine -- coming off his TAG, with three potential $100M+ films -- Surf's Up, Transformers, and the fourth Indiana Jones film -- waiting in the wings. Right now, his bond is at a hugely cheap $38. Buy, buy, buy!

Coming tomorrow -- a look at this season's blockbusters, and some potential for huge profits therein....

Coming Next Week..... The HSX Advisory Report (name to be coolified later)
May 17th, 2007 4:48PM

Hey all! Beginning Monday, look in this space for a new blog covering the Hollywood Stock Exchange and my own brand of guaranteed-to-possibly-work investment "advice". So are you thrilled? What? You've never heard of HSX?

Well... the Hollywood Stock Exchange (www.hsx.com) is a long-standing "game" involving the trading of securities based on movies and actors/actresses/directors. Once upon a time it was merely a lark -- albeit a technically sophisticated lark -- used only by Hollywood "insiders" -- and by "insiders" I mean the rank and file of cinematic life, not Bruce and Demi and their buddies. Over the years, it has turned into a VERY sophisticated modeling tool that's actually owned by the huge investment firm Cantor Fitzgerald. (HSX has proven to be highly predictive, and Cantor bought it with an eye towards developing the underlying software into something that could be predictive in the stock market... but I digress.)

Anyhow, the concept is simple. You start with $2,000,000 in "Hollywood dollars", and you buy low and sell high. Since films and actors don't have intrinsic financial metrics such as free cash flow and EPS, the securities are ultimately valued based on more entertainment-related metrics. For films, it's a simple two-pronged calculation: the Monday after a film opens, its market price is adjusted to 2.9 time the film's domestic box office (gross) over the weekend. So if Shrek 3 takes in $100M in B.O. this weekend, on Monday it would be adjusted to $290 per share. Four weeks later, the security is "redeemed" at a value equal to its domestic B.O. over those four weeks. So if Shrek 3 actually earns $500M by its fourth weekend of release, the security will cash out ("delist" in HSX lingo) at $500/share. With me so far?

Bonds -- which represent actors or directors -- are a bit more complex. Bonds are valued based on the "Trailing Average Gross" of the star. For HSX purposes, this is the straight average of the total delist prices of the star's last five credited films. (Generally, a star is credited towards a film if they have any sort of a significant role that exceeds a mere walk-on.) Every Tuesday, a raft of bonds are adjusted as movie stocks delist and the stars that were in them get a new data point on their five-film TAG.

What makes the game interesting and challenging is that pretty much EVERYTHING gets a security, sometimes when it's only a concept. For example, maybe there's just an "idea" floating around town that it would be really cool to actually make Aquaman and cast Adrian Grenier in it. You'd probably see an Aquaman security pop up on HSX, at a low issue price (because the film is highly speculative at this point). Say, maybe, $6. Well, you can buy up shares in that stock (you can buy up to 50,000 shares of a security, or 10,000 bonds) at $6 (which is a pretty low price) -- if you buy the max, that's H$300,000 you're putting on the table. Well, maybe the film never gets made -- the less buzz there is about it, the lower the price will sink. If it's clearly dead, the security will delist at zero. You're out your H$300,000 at that point. But hey -- maybe the Entourage people are really into it, and Spielberg signs on, and Sony Pictures throws $550M at its budget. Well, now you've got a real, live blockbuster on your hands. Maybe the stock soars to H$200, and your little stake is now worth H$10M. Woo hoo!

So there's your introduction to the HSX. And I haven't even mentioned the mutual funds, or the fact that you can short stocks. If only it were real money.... Actually, if it were real money, I'd be retired by now. My original H$2M stake from back in 1998 or so is now worth about H$270,000,000....

Coming Monday, you'll be seeing a daily column with tidbits and advice on the day's IPOs, the day's movers and shakers, and upcoming releases. Come along for the ride -- it's free and non-fattening!

Here's your first tip: the films with the biggest obvious potential are almost always IPOed on Saturday. Why? To drive traffic to the site on weekends, when people aren't killing time at work. This weekend, in honor of Shrek 3, we're getting Puss In Boots (Ticker symbol: PUSNB), a spin-off of the eponymous Shrek character. I'm cautiously optimistic about this one, even at its issue price of H$60. On the plus side, it's an attractive character who can almost certainly carry a film on his own. On the minus side, this was originally intended as a straight-to-video feature, but Dreamworks had second thoughts and decided to push it theatrically. There's nothing to guarantee they won't change their mind again. Tread cautiously.... Still, I think a good short-term gain can be had here. Go for it.

See you on the trading floor... Excelsior!

The horror.....
June 13th, 2005 6:16PM

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