Monday, November 24, 2008

HSX Week of Nov, 21: The Bolt Bloodbath

Last week, I took a look at the opening weekend predictions for two movies, Bolt and Twilight, and how I expected them to do on HSX. My Twilight prediction was good; it opened at $70 million, well above expectations, so I made a solid chunk of money on it. As did the producers; it made a profit just on the grosses from the opening weekend, which, as the NY Times puts it, means that it is in one of the "most exclusive clubs in Hollywood." Technically it hasn't made a profit yet, since the grosses are split with theaters, but very impressive.

Bolt, on the other hand, was a disaster. I noticed a discrepancy between the price of the stock and the price of the options, and the stock had shown some weakness, but I was still optimistic. It's a Disney movie about a dog; how family-friendly can you get? Maybe because it didn't have the Pixar brand name attached, audiences didn't show it the Pixar love. And they did not show it much love. It was down H$5 when I checked it Friday morning; that really should have been a sign to short it. That's a major move, and not in the right direction. I even wrote about the importance of Friday morning last week.

How bad was it? It adjusted down H$43. I lost over H$2 million. I didn't lose a spot on the rankings, which is good, but if I had shorted it, I probably would have gone up a notch. I immediately sold the Holiday Blockbuster Warrant (at a 100% profit), and shorted it at around H$10, so I'll make some money that way, but only about H$100,000. Meanwhile, I shorted the stock last night, but it's only down H$1.50 today, so maybe I'll hold it long until the delist, on the theory that a family movie with great reviews will make money over Thanksgiving. Fortunately, I played the options on both correctly, so I made good money there, but not enough to overcome the failure to take my own advice.

Lessons learned, and learned repeatedly. I've known about the importance of Friday morning for years. I didn't do a worst-case scenario analysis, which I really should have done. There was very little potential upside holding Bolt long, but some fairly serious downside. There was almost no chance it was going to open above $50, but there is a long way to go between $45 and zero. It opened with $26 million, which, for a regular movie, is not a bad opening. But less than respectable for this one.

What's odd is that it was so far below most expectations. On Intrade, the lowest contract had it opening above $37.5 million, with a top contract at $50 million (and jumps of $2.5 million in between). On's Derby, the average prediction was $40 million. Maybe I'll have to actually see it to figure this mystery out.

So I was not alone in my wildly optimistic prediction. But still, note to self: imagine the worst.

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