Thursday, May 20, 2010

March 21, 2010: Shrek and MacGruber

There are two movies opening this weekend, both comedies. One is pretty much a guaranteed blockbuster, the other is a product of Saturday Night Live.

Shrek 4evah (SHRK4) is finally here, and our beloved green ogre is finally bidding his adieus. It's been fun, green man! I like the way DreamWorks is handling this - they seem to be bowing out gracefully. They've had a great run, now it's time to say goodbye. The stock is trading at H$247, down from a high of H$265, but up H$4 and change today. Strike price is H$90, right on target, with the call (SHR4CA) trading nice and high around H$5. The put (SHR4PU) isn't doing too badly, either, however, aiming at H$3. The stock price indicates an opening of H$91, so the split on the options is understandable. The CX derivative hit a high of H$331, and has been dropping ever since, currently around H$280. It's going out on a bazillion or so screens. It's in 3D, which I almost forgot about, because it's just not that exciting. But that may help the BO. Critics are not that impressed, with only about half reasonably impressed, giving it a 50% rating on RT. I remember not being that impressed with the third one, so that may diminish the appeal of this one. Shrek 2 opened with $108 million, and Shrek 3 opened with $121 million. However, Shrek 3 did not make as much as Shrek 2, $322 million domestically versus $441 million. So we're on a downward trend, but that is taken into account with the stock. The director raises some concerns for me: Mike Mitchell's big movie on his resume is Deuce Bigolo: Male Gigolo. The writers haven't done all that much, either. That suggests that DreamWorks wasn't willing to spend the money for the best people. That's not good. I have no interest in seeing this, but I think there's some lingering goodwill. I think it will beat the lowered expectations. But I will be watching it closely.
Stock: Long
Call: Long
Put: Short
CX: Short

The other opening this week is MacGruber (MGRUB), a spinoff of the Saturday Night Live sketch. Stock is not doing well, currently at H$38, down from a high of H$49. The strike price is H$15. So we have one of those situations where HSX made a good guess about the strike price a couple of weeks ago, but it's now ridiculous. Call (MGRUCA) is below H$2, while the put (MGRUPU) is above H$3. CX derivative is at H$38, down from H$47 -so it has been moving in line with the stock. It's going out on 2,400 screens, not a bad release, but not ultrawide. Critics are excited, with an 89% rating on RT, but that's only 9 critics. I think the trailer is terrible, and I have no interest whatsoever in seeing this movie, which looks like it will bomb.
Stock: Short
Call: Short
Put: Long
CX: Short

Update Friday morning: The Big Green Guy is still doing well, up H$1.50 today. MacGruber is still tanking, down H$2.25 to H$33. One of the questions that I am starting to ask is: If a movie is targeted at a specific audience, what are the chances that it will expand outside of that demographic? For example, last week, Letters to Juliet was targeted at women, with very little chance of attracting men, other than guys on dates. This week, SHRK4 is targeted at kids and families, but the appeal of the franchise is extremely broad. MacGruber, OTOH, is targeted at - well, I'm not sure, exactly, but it's probably teenage boys - and doesn't have much chance of expanding out of that. Maintaining all positions.

Update Sunday night: An almost perfectly split weekend, at least as far as my predictions. A rather terrible weekend, as far as actual results. I nailed MacGruber, which did in fact bomb - it made a grand total of $4 million. I never understood the appeal of this movie, and am very glad I made a good chunk of change shorting it. I needed that shot in the arm, cash-wise, because I was mostly wrong about Shrek 4. It opened with $71 million, not a bad haul, but way below expectations. I made a couple of mistakes: one, I didn't ask myself whether or not I wanted to see it, which is relevant for such a wide, mainstream release. The answer is no, I have no interest, I'm kind of bored with Shrek. Two, I put too much emphasis on the movement in the last two days. Three, I didn't go with the downward trend. Four, I was way too inside the bubble of Hollywood and the industry, and I didn't realize that. That's another question to ask: am I in the bubble? Shrek was getting a huge amount of publicity, but that's all a function of the bubble - lots of media groups want to do interviews etc. with the cast, because that's cheap and interesting for a couple of days. But it's also manufactured by the studio. Way too inside the bubble. That's the lesson for the weak.

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