HSX: Week of February 20, 2009

Not much excitement on the Exchange this week, just two wide openings. Tyler Perry dons a wig again to play Madea, only this time she is going to jail in Madea Goes To Jail (MDGTJ). Every filmmaker is part artist and part hustler; the question is always how much of each do they have. Ingmar Bergman is mostly artist; Roger Corman, just about pure hustler. I'm not sure how much of an artist Tyler Perry is; he's certainly very creative, I just haven't seen enough of his work to judge the quality. But damn can the man hustle. The stock has been on a slow but steady rise up, to the low 70's. Without any competition to speak of, he has the field wide open. However, HSX set the strike price for the options at H$30, which I think was highly optimistic. The market agrees with me; the call is floating between H$1.50 and H$2, while the put is close to H$5. A $25 million opening weekend would still be quite respectable.
Stock: Long
Call: Short
Put: Long

The only other wide release is one of the cheesiest excuses for exposing celluloid to light that I have ever heard of. It's called Fired Up (MAXFU: the MAX stands for Maxim), and it's about two star high school football players who enroll in cheerleading camp because there are no other guys there. The marketing is quite explicit: 300 girls. 2 guys. You do the math. There was a funny moment in the trailer; one of the guys starts to take the cheers seriously, and suddenly he's worrying about things guys don't normally worry about. That's funny. It could be a guilty pleasure, but my guess is that the portion of the audience in the female-above-35 category will be approximately zero. The stock has been dropping of late, possibly due to traders remembering such things as taste and decency. The strike price is H$10, with the options sending mixed signals. The call is at H$2, which is close to the prediction of the stock. The put, however, is at H$3.43, strongly suggesting that this is a bomb of historic proportions. Every now and then I take a position strictly for reasons of taste. Guess what I am doing this week. Taking a stand for all the feminists that I know and love.
Stock: Short
Call: Short
Put: Long

Update Wednesday evening (I took a couple of days off of blogging). Boy, did I underestimate Tyler Perry. I said that a $25 million opening weekend would be good; his movie brought in $41 million. Boy did I pick the wrong movie to short the call. Let this be a lesson: don't short the call on a Tyler Perry movie. The problem with shorting a call is that there is technically infinite upside, so there's really no limit to your losses if you short a call. So it's rarely a good idea to short a call. So I am going to come up with a new rule of thumb: only short a call if the stock itself is on a downward trend. And remember that HSX is usually very good at setting the strike price.

Fired Up, on the other hand, tanked, and shorting the call on that one was actually the right thing to do. So I learned a lesson this weekend, and then learned a lesson that reinforced the first one. The lesson is: be very, very careful about shorting a call of a stock that is rising, but be sure to short a stock that is tanking.