HOLLYWOOD STOCK EXCHANGE
THE ENTERTAINMENT MARKET
THE ENTERTAINMENT MARKET
OK, I've put together a model in Excel, and your math is correct, in that you'll make a guaranteed gain if you hold the moviestocks in those
amounts. This is as true for an opening weekend of $5M as for one of $30M.
The logic flaw - as I see it - is that you're choosing a less profitable, risk-free path over a more profitable one that has only slightly more risk.
Say 21OVR overperforms this weekend and earns $20M. You are guaranteed to make $225K, or a return of 7%. But someone holding both the moviestock and OW max long would make $965K, a return of 18%.
Because moviestocks don't halt until Saturday evening - well after the first box office estimates have come in - any trader checking in after this news would be wiser to flip their 37037 short position in 21OVR to 100K long, rather than staying short. The biggest risk here is that the early estimates may prove to be inaccurate, but there's generally a clearer picture by Saturday morning.
So you'd gain 2.5 times the return by taking manageable risks.
If you're not going to be around over the weekend to respond to news, etc then your method is the safe one. But it won't provide you with the greatest gains either.
Arbitrage Feb 25, 20:34
Sorry the prices have moved since I wrote this and forgot to paste it {nm} Feb 25, 20:41
There still is an arbitrage opportunity though {nm} Feb 25, 20:42
OK, I've put together a model in Excel, and your math is correct, in that you'll make a guaranteed gain if you hold the moviestocks in those Feb 26, 11:39
Thanks for the responses everyone {nm} Feb 27, 09:41
