HSX: Week of January 23, 2009

We have five movies going wide this weekend, but three of them are already in limited release, so only two are opening. But two of the three expanding are Best Picture nominees, and the third, Revolutionary Road, stars Kate Winslet, Leonardo DiCaprio, and was directed Winslet's husband, Sam Mendes (American Beauty). So it's a good weekend for quality.

The two Best Picture nominees are Frost/Nixon, which has gotten very good buzz, and Slumdog Millionaire, which has gotten spectacular buzz. I've seen Slumdog. It's amazing. I haven't seen Frost/Nixon, but intend to soon.

Our first movie opening this weekend is Inkheart (INKHT), which looks very much like Bedtime Stories, the Adam Sandler movie that opened up a few weeks ago. Bedtime Stories has already cracked $100 million; Inkheart will probably be lucky to make half that. But Brendan Fraser is in it, and he still has some star power, although some of us are starting to wonder. I like him, but he seems to be aiming a little low in terms of quality these days. The stock is trading up, around H$36. The strike price is H$10, which is perfectly reasonable, the call is trading very high, above H$5, while the put is, correspondingly, barely treading water. Looks somewhat decent, and Brendan Fraser has a solid track record, even if it's not artistically all that inspiring of a resume. I wouldn't be surprised by a nice adjustment upwards, with an opening weekend of at least $13 million.
Stock: long
Call: long
Put: short

At the opposite end of the fantasy spectrum is Underworld 3: Rise of the Lycans (UNDW3). The Underworld franchise is apparently doing well, or otherwise there wouldn't be a Part 3. Kate Beckinsale, star of the first two, is listed as being in this one, but isn't part of the marketing. My guess is that she made some good money on it and isn't all that interested in being a action heroine. I first saw in the indie comedy Shooting Fish (which I recommend), and I've been a fan of her since. She seems content to be working steadily, acting in dramas, comedies, action movies, etc., but I have a feeling that if she had been part of the marketing for this one, she would have been defined as just another beautiful face, which would have been unfortunate. She seems fairly intelligent and grounded. So I'm somewhat glad she's absent from this one - go do something more interesting, Kate.
As for the BO prospects, they look good. The stock is trading at H$56, right at its peak, obviously an excellent sign. The strike price is H$20, and the call is trading just as high as the call for Inkheart, above H$5. So the call is predicting an opening weekend north of $25 million, while the stock is predicting at least $21 million. Should be a great weekend for werewolves and vampires. Do I hear $30 million? That might be on the high side, but I'm guessing it will at least come close to that.
Stock: long
Call: long
Put: short

Well, it looks like I was too optimistic. INKHT pulled in $7 million and change for the weekend. It's not technically a bomb yet, but it's not looking good. That was about half the high end of my guess. Oops. UNDW3 came in just under $21 million, right what the price of the stock predicted (the adjust was under $H2). Oops again on my part; that was below my guess.

I think the options were basically a wash for me, while I made money on the stock for UNDW3. I shorted it post-adjust, and expect it to delist below the adjust, which it looks like it will do. Movies aimed at the youth audience tend to have great openings, but not great legs, because a lot of the audience shows up on the opening weekend, and then interest fades quickly. HSX uses 2.7 as the adjust multiplier these days, which makes that play a little harder. The multiplier was originally 2.9, then 2.8. So movies don't do as well these days after their opening weekends as they used to, and HSX takes that into account.

It's January. We had to see at least one bomb during the winter doldrums. Sorry Mr. Fraser. Good luck with the career rehab. I actually am rooting for him. I don't think he's made any horrible mistakes, but neither has he done anything really inspiring, either. Time to take some artistic risks, Brendan.