HSX: Week of March 6, 2009

There's only one movie opening in wide release this weekend, but it's a doozy: Watchmen. It's based on the groundbreaking graphic novel from 1985. The title comes from the phrase "Who will watch the watchmen?" I've never read the book, but I know some comic book fans who have loved it ever since it came out. This is one of the most anticipated movies not just of this year, but of any year.

First, let's get the basics out of the way. The stock is trading around H$175, not too far off its high of H$186. It's been trading around there for months. This is not surprising; the stock IPO'd in November 2001, and hype has been building for literally years. That price predicts an opening weekend of around $65 million, which, coincidentally, is the strike price for the options. It's been up around H$4-$5 today, a good sign. The price on the call is in the stratosphere, almost H$10. That's nosebleed territory. The put is at H$2, which is actually higher than I expected; I was thinking it would be below a buck.

I checked the screen count, which I am now going to be doing religiously. It's 3,611, which is good a wide release, but not immensely wide. To hit $75 million with that many screens, it would have to have a per screen average (PSA) of $20,770. That's entirely possible. Zack Snyder's other comic book movie, 300, opened on 3,103 screens, with a PSA of $22,844, with a gross of almost $71 million. Dark Knight opened on 4,366 screens and averaged $36,283, for a gross of $158 million.

So $65 million is at the low end of possibility. If Watchmen averages $30,000 per screen, roughly between 300 and Dark Knight, it will pull in $108 million. No wonder the call is trading above any call I can remember.

Some critics have grumbled about the complexity of the plot, but it's scoring 65% on rottentomatoes.com, so not too many worries there.

I had the foresight (patting myself on the back here) to buy the stock when it was at H$0.66. Yes that's right, 66 cents. So I have a profit so far of over H$8,700,000, with a return on my investment of 26,363%. Not bad.

Should be a good weekend for geeks and dysfunctional superheroes!

Stock: Way long
Call: Even longer
Put: Short

Update Monday afternoon: Oops. It was a good weekend for geeks and dysfunctional superheroes, but not a good weekend for making predictions about how well Watchmen was going to perform, particularly me. It came in at $55.7 million, a solid performance, but nowhere near even the strike price. I should have known; the stock was down more than H$4 on Friday morning, and I ignored my years of experience telling me to bail. Damn! I feel stupid.

I think my mistake was buying too much into the hype. This is one problem with living in LA; it's entirely possible that I occasionally identify a little too personally with the movie industry, so I am biased in favor of major releases wanting to do well, because those are my peeps making that movie. That's another thing to remember. This might explain why I was so wrong the other way with Madea Goes To Jail - Tyler Perry is not a product of Hollywood (his studio is in Atlanta).

I did see the movie on Saturday night, and I completely understand why it didn't do quite as well as anticipated. First, it's very long, which cuts into the number of screenings available. I knew that was a possibility, but discounted it. But it's also a very violent movie, more so than I was expecting. I got it, but I can see why reading the comic book would have been helpful. There was a huge amount of exposition, all of it necessary, but it felt like the story could have filled at least one more movie.

Also, I strongly suspect that the story was much more relevant in 1985 than it is today. It takes place in an alternate reality, in which Richard Nixon is still president, in his fifth term, and nuclear war with the Russians is a very real possibility. Back then, I'm sure it was a great political statement. Today, it's more of a pure comic book.