Playing & Trading Strategy

(First in a series of observations designed to be helpful to relatively new traders):

Understanding price movements at HSX can be difficult for newcomers, particularly for those familiar with markets.  One of the reasons some movements seem inexplicable is that the "genuine" value of an HSX security -- eventual cashout value, real or perceived -- is imperfectly related to the price of that security at HSX.

Different HSXers can and probably should view a particular investment from varying perspectives.  HSXers have varied resources; some have a few million dollars, others have billions.   Some trade daily and watch transient trends; others check a portfolio infrequently and focus on long-term factors.  Some HSXers are just starting and buy the actors they like based on which are their favorites. All of the trades -- informed or uninformed, long- or short-term -- influence price movements.

'Playing the players' can explain otherwise inexplicable movements, and recognizing that aspect of HSX can defuse confusion and precipitate profit.

Cate Blanchett provides an instructive example today.

Yesterday, Cate was adjusted by the HSX gods, who override the market in certain circumstances, because one of her movies delisted the day before. Her price was frozen for a few hours after adjustment and traders groomed their holdings in response to the adjustment. The pricing formula, based on her movie history and forecast as reflected at her HSX page, indicates that her next adjustment is nearly certain to increase the HSX price of Cate Blanchett.

If our math is correct (you've been warned), the next movie to be dropped from her TAG (trailing average gross, which for a busy actress always involves the hayl from her five most recently delisted movies) is a sixteen-center at HSX; it earned less than $200,000 and would be a liabilty for any TAG. The movie expected to trigger her next adjustment is expected to earn far more than that.  Even if that movie is pulled or another jumps its place in Cate's line, however, and the replacement movie earns next to nothing, the largest HSX decline Cate could experience in those unlikely contexts would be three cents (sixteen cents divided by five movies).  Cate therefore offers substantial opportunity for increase in price, essentially no chance of a decrease (especially with commissions considered).  

One could understandably conclude from this situation that Cate Blanchett must be trading higher at HSX today.  But she is not.  She is down today.  From a reasonable but unreliable perspective, this makes no sense.

The explanation is that traders with small portfolios or short-term horizons are dumping her today because her expected daily return on investment, with her next movie not expected to change the TAG for six months, is far too low to justify holding her past yesterday in a small portfolio.  Cate Blanchett is a sure thing for me [Belushi wink], but for someone with a small portfolio she is essentially worthless.  It is better for a new player to dump Cate, despite her promise of sure profit, take the cash, and find something that can provide worthwhile short-term gain -- an actress with a big adjustment expected in the next few weeks, a movie that is hot among traders, a volatile derivative that could triple in value in a week.  For many players, selling a 'can't lose' security and buying something riskier was the prudent move. Big hitters must watch the decline in their portfolios and grind their teeth -- or, if they figure the counterintuitive stampede will be great enough, join the bandwagon temporarily.

For a new HSXer, understanding the concept of 'playing the players' can change your life. Mastering the art of 'playing the players' can generate billions of illusory dollars.

Good luck!