Thursday, December 17, 2009

December 18, 2009: Did You Hear About Avatar?

There are only two movies out in wide release this weekend, but one is one of the most highly anticipated movies of this, or the last several, years.

But first, the sacrificial lamb. That would be "Did You Hear About the Morgans?" (MRGNS), starring Hugh Grant and Sarah Jessica Parker. I like Hugh Grant, I think he was great in Notting Hill. I'm not such a fan of SJP, but I can see the two of them as a couple in New York. Makes sense to me. The problem I have with them right now is that the stock is tanking big time. Just dropping like a rock. It's going out on 2,700 screens, which is a good wide release. But it's at only 10% on I have a strong feeling it's being released against Avatar for a couple of reasons. One, no other studio wanted to release a movie this weekend. Two, the studio probably assumes it's not going to great business anyways, so why even try? Three, it will be easy to blame the lack of box office on the competition. The strike price is H$20, which is absurd for a stock barely breaking H$30. The call (MRGCA) is dropping almost as fast as the stock, while the put (MRGPU) is heading skyward, about H$4 and a half. The CX derivative on HSX is still above H$40, wonder of wonders, but we can probably assume that won't last long. It's also dropping on Cantor, although it's still in the mid-30's. I like the trailer, but I have a feeling that all the good jokes are in those 2 1/2 minutes.
Stock: Short
Call: Short
Put: Long
CX on HSX: Short
Cantor: Short

Now, of course, we come to the big box office draw this weekend, a little movie called Avatar (AVATR), by some guy named James Cameron, who is one of the most successful directors of all time. The expectations are through the roof, and the backlash is almost as intense, even before the movie is released. Several people have pointed out that similar predictions of doom accompanied Titanic. The stock has been floating above H$200 for a few weeks now. Strike price is H$65, which correlates to a stock price of H$175. Call (AVACA) is, appropriately, through the roof. Put is in the nether regions. It's going out on a bazillion screens. Critics are loving it, and falling all over themselves to praise it. It's at 82% on RT. Strike price for the Holiday Warrant is H$200, and that's looking absurdly low. CX on HSX is at H$277, which is way high. The Cantor derivative has been floating between $220 and $250. There are various Nominoptions. Go long on most of those.
Stock: Long
Call: Long
Put: Short
Holiday Warrant: Long
CX on HSX: Long
Holiday Warrant: Long
Cantor: Long

Update Friday morning: Avatar is up H$9, and MRGNS is down almost H$3, so it looks like people are buying the hype about Avatar. James Cameron does have a rather spectacular track record. Morgans looks like a bunch of jokes in search of a plot. I have a feeling that is going to turn off most demographics. East Coast elites will get some of it, but they might also not appreciate being made fun of. Meanwhile, people in the heartland might be offended by the stereotypes of down-home folks with guns. I'm also not sure how it resolves. Are they going to fall back in love? So keep the short on that one.

Update Sunday night: Avatar didn't quite storm the gates as expected, but it still did $73 million, and apparently there was a major storm on the East Coast that thwarted some moviegoing. I'm still long to delist. Morgans, OTOH, was, in fact, a bomb, and presumably will be forgotten in a few weeks. I got everything right about MRGNS, while the only thing I got clearly wrong about AVATR was the stock. It dropped H$19, but that's just 10%, and I think it will make it up. CX on HSX is still a little high, but it's impossible to tell whether or not I was right about anything of the derivatives besides the put and call. Both of which I got right. So it was a good weekend.

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