In the spirit of the 82nd Oscars (which I may or may not be watching as I write this post), today I want to discuss a novel new investment vehicle that I recently heard about.
We've discussed Options investing here on InvestingDecoded in the past. The basic idea is that you create a contract whose worth is based on the intrinsic value of a hard asset (i.e. it's value is derived from the value of a hard asset...i.e. a derivative). Recently Cantor Fitzgerald, leading financial services company, announced that it has received approval from the CTFC to create an market exchange for Options based on movies.
Huh?
Known as the Cantor Exchange, this new market will allow investors to bet on the box office success of movies. Investors will be able to invest in options for upcoming film releases. Each options will price at one-millionth of the expected gross ticket sales of the movie 4 weeks after release. That means that if the market is betting a movie is going to make $100 million dollars after 4 weeks in the box office, the option contracts will price at $100. As the expected 4 week gross revenue number changes, the contract price will adjust accordingly.
What's the Impact Here?
The ability to trade the success of movies provides more than just a betting market where you and I can prove how much we know about good movies (although it does that too). The Cantor Exchange will provide a marketplace for moviemakers to hedge their risks when financing movies. There has been a strong and consistent trend in Hollywood to bring out pricier and more extravagent films. Having an exchange where you can gauge the success of a project you've funded gives moviemakers the opportunity to long or short options for their movies. That way they can reduce their exposure if the movie is not a commercial success. This also gives opportunities for low budget filmakers access to more capital as they'll be able to write Option contract for they're films and have access to a greater number of investors through the Cantor Exchange.
But All's Not Well
I think the concept of the Cantor Exchange is really interesting. It's bringing investing principles to filmaking to a level at which it has never been. However, I do see some serious risks with this exchange. One of the most important principles in investing is the equal dissemination of information to all potential investors. In other words, if one investor knows something, all of them should - otherwise you get the chance of insider trading. The risk I see with the Cantor Exchange is that film producers can gauge the potential success of a movie prior to its release and start trading options on it while other investors haven't had the opportunity to see the movie. However, I think that is a very fixable situation. There are very strict regulations on how CEO's of publicly traded companies (as well as others with 'material insider information') can trade the stocks of those companies. These same rules would need to be applied to studios and those at the studios with that type of information. With these rules in place, I think the Cantor Exchange can be a really interesting and lucrative endeavor for all of us individual investors.
Learn more about the Cantor Exchange here
What are your thoughts?
Questions/Comments/Feedback?
Please don’t hesitate to let me know of any questions or comments you have about this post or any other. If you want me to write about something else investing related, do let me know!
The Standard Disclaimer:
The stuff I just wrote above is my opinion and my opinion only. Please do not take it as fact. Perform all necessary research and analysis prior to acting on anything I've said above. This includes consulting with a financial advisor.
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