Thursday, June 10, 2010

June 11, 2010: The A-Team, The Karate Kid

We're going back to the 80's this weekend, with a movie based on a TV show from the Me Decade, and a remake of a classic from that era.

First up is The A-Team (ATEAM). Four Special Forces guys from the military (I'm not sure if we're supposed to know what branch of the military they are actually from) are convicted of a crime they didn't commit, so they go on the run and proceed to blow things up in the process of being cool. I have to admit that I am looking forward to this movie, regardless of how utterly nonsensical the plot turns out to be. If you look in the dictionary under "middle-aged white guy guilty pleasure," this would be right there. The stock has followed the classic wannabe-blockbuster bell curve, hitting H$149 before coming back down to earth - it's currently at H$100, or about a $37 million opening weekend. Strike price is $35, right on target, unlike last week's batch of mispriced options. Call (ATEACA) is at H$3, very much in sync with the stock price. Put (ATEAPU) is, however, also above H$3, so we have divided opinions in option-world. Critics aren't excited, with a 51% rating on rottentomatoes.com. The plot, I am sure, is largely irrelevant. But so was the plot in the original, as far as I can remember. The most memorable thing from that entire show's run was Mr. T's line "I pity the fool!" This is purely an exercise in style. It's going out to 3,500 theaters, but, more significantly, it doesn't have a lot of competition. CX derivative is at H$112, down from an absurd high of H$177. The strike price for the blockbuster warrant is H$120, a reasonable guess, but it's trading just above H$3, so not much optimism there. As an exercise in style over substance, it generates a lot of buzz, but not much deep affection. I would like to see it in the theater, but I won't be crushed if I don't. Time to ask the question: is there greater potential on the upside, or the downside? Looks like the answer is the downside - it might open above $35, but it's not looking likely. I'm more comfortable with something between $30 and $35.
Stock: Short
Call: Short
Put: Long
CX: Short
Blockbuster Warrant: Short

Next we have The Karate Kid (KFKID), starring Jackie Chan and Jaden Smith, son of Will and Jada Pinkett-Smith. I have to admit that I have never seen the original (it's on the list), but I am familiar with the idea. I don't have a lot of interest, but apparently a fair number of other people do: the stock is at H$94, right near the high, although it is down H$2 today. That's about about a $34 million opening. Strike price is very close to that, H$35. Call (KKIDCA) is, however, illustrating that fine difference between $35 and $34; it's below the IPO, at H$1 and change. The put (KKIDPU) is heading in the opposite direction, well above H$4. The CX derivative, as most do, is dropping from a high price, in this case, to H$97, down from H$110. Strike price for the blockbuster warrant is H$100, also reasonable, and also looking possible, but barely: it's at H$4 and a half. Critics are surprisingly positive, with a 58% rating on RT. That's not much better than the rating for A-Team, but the reviews feel better. There's a reason to remake The A-Team: explosions are more fun on the big screen. I have heard many complaints about remakes and sequels; it's why I started The Original Ideas Fund. I have a strong gut instinct that this movie, even if it's good, will be a victim of remake fatigue. Much more potential on the downside, methinks, even if it's going out on 3,600 screens.
Stock: Short
Call: Short
Put: Long
CX: Short
BW: Short

Update Friday morning: It's not looking good for either of these releases. KFKID is down H$3.50, and ATEAM is down H$6.50. Fairly obvious what to do. Maintaining all positions.

Update Sunday night: Well, that was quite the surprise. KFKID opened with $56, ridiculously above expectations. The A-Team opened at $26 million, which was expected only insofar as I was predicting an adjustment downwards. So what the heck happened? Someone suggested that if you don't show many movies to a particular segment of the audience for a while, they will respond really well when something finally shows up that they might like. I wasn't aware that the family movie genre was lacking in product, but that sounds about as plausible as anything. Still open for suggestions.

My mistake this week was not paying attention to the trend line for KFKID, and lumping it in with ATEAM as an 80's retread. KFKID did NOT experience the bell curve, it was still on a strong trajectory up. Yet another lesson learned.

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