7 May, 2007- I decided to re-write my article about Marvel Puts this week before the market opens tomorrow because there is an important lesson in my reasons for buying the Marvel June 25 Puts last week even if this play doesn’t turn out to be successful. And though I normally don’t blog about options as I only utilize options to supplement income every now and then, I’m writing some more today because of the lesson this particular case has to impart about building wealth with stocks.
To summarize why this put option was even on my table, Marvel stock had a history of running up in share price before both of its last two Spiderman premieres and then taking a hard fall immediately after Spiderman 1 and Spiderman 2 had premiered. This pattern alone made Marvel put options a compelling play but NOT a compelling enough buy unless some other things first fell into place. Over the past week or so they fell into place. My rationale for entering this position last week as is follows:
(1) Many retail investors in the U.S. were waiting for Spiderman to open in the U.S. and for reports of U.S. box office receipts before deciding whether or not to buy puts but this was entirely unnecessary as Spiderman 3 had already opened months ago in Australia (it was already playing in theaters in February when I was in Australia) and premiered in Tokyo on April 15th. In fact, in anticipation of its Tokyo premiere, Marvel shares spiked $1.50 a share higher just days prior.
(2) Since that time, Spiderman 3 has broken every box office record for single-day receipts all across Asia. According to the BBC,” in Japan its opening-day sales of 415 million yen ( £1.73m) ranked as the biggest for a Tuesday, according to Sony. Films in Japan normally open on a Saturday.
In South Korea and Hong Kong, it set new marks for the biggest opening day, taking in 3.2bn won ( £1.7m) and $HK7.5m ( £481,000), respectively. Sales in Singapore, the Philippines, Malaysia and Thailand were the highest for any single day, opening or otherwise. Taiwan sales were the biggest for any weekday.” This story was reported on Wednesday of last week.
However, I am sure that many American investors couldn’t decide what to do about Marvel until weekend U.S. box office receipts were finally reported yesterday. When it comes to investing, if it doesn’t happen in the U.S. or is not reported in the U.S., then to many Americans, it never happened at all. I say this somewhat facetiously but there is a serious undercurrent to this statement as well. I know that this doesn’t apply just to Americans but to people everywhere across the world. People have such amazing short-sightedness when it comes to investing that even today, I am still amazed. When I researched newsletters when developing my maalamalama business model, I discovered time and time again that the “mark of death” for newsletters in the U.S. was to discuss foreign stocks traded outside of the U.S. Americans just weren’t interested in buying foreign stocks even though the bulk of foreign stocks worth buying can still be purchased on American exchanges. But you see this same pattern everywhere. Japanese investors invest primarily in Japanese and U.S. markets, Chinese investors invest primarily in Chinese and U.S. markets, Brazilian investors invest primarily in Brazilian and U.S. markets and on and on (the U.S. markets, due to its prominence in financial media reporting, will always remain in the mix of retail investor considerations. However try to get any retail investor to dump 30% of their portfolio in any foreign market other than the U.S. and it’s like pulling teeth).
Just as the majority of retail investors ignore the majority of the world’s markets, those sitting on the fence about Marvel refused to take action last week simply because they couldn’t incorporate already existing news into their decision merely because this news had been reported in foreign markets and they had no idea that it existed. As I said before ,to most investors, if the news is not reported in their domestic major media, it’s like it never happened at all. Not only is that ridiculous but it is also one of the top reasons why the retail investor will always fail to build wealth in stock markets.
But before I continue, let’s finish the reasons why I decided that Marvel puts presented a compelling enough play to enter last week.
(3) If you look at the price chart action, after Marvel shares spiked on the anticipation of a huge Tokyo opening, the huge Tokyo opening happened, but yet Marvel shares failed to go any higher. Not only that, despite record openings in almost every major Asian market, Marvel shares still failed to break significantly higher above a ceiling of about $30 except for April 30th when it reached $30.22 a share. However, even that day, Marvel still closed below $30 at $29.53.
(4) It didn’t take much foresight to predict, based upon Asian box office receipts, record earnings when Spiderman 3 premiered in the U.S. The chances of Spiderman 3 flopping in the U.S. was about zero. Just as Marvel shares spiked higher in anticipation of the Tokyo opening, there should have been an even greater spike in its price in anticipation for a much surer thing, a wildly successful U.S. premiere. However, this didn’t happen. We did experience a fairly decent rally after a down day in Marvel share price before the U.S. premiere, but the important detail to note was that its share price still failed to significantly break above $30 a share.
Given findings (3) and (4), I concluded that if Marvel could not break significantly higher above $30 a share given record earnings of Spiderman all across Asia and Australia and even in anticipation of record U.S. box office receipts, then it may have found its short-term ceiling in share price. Therefore, buying puts last week was not a bad risk given the potential reward.
That said, this is still not nearly a strong play in my mind as the BIDU calls and GM puts I previously wrote about. There are no technical ceilings of resistance in play such as a 50-day or 200-day SMA at $30 a share, and there’s always a possibility it could still go wrong. Yesterday during market hours, there were at least two solid hours, if not longer, where Marvel June 25 puts came down to the same price I paid last week at $0.40 a contract. Though this play is much more speculative than the BIDU calls or GM puts, much of its speculative nature is mitigated by the reasons I outlined above, and though it is rare that I enter a play of a more speculative nature, in this case, I decided to give it a go.
I’m not saying that this position will turn out to be a huge winner, and I will always employ strict stop loss points. Obviously I believe the chances it will turn out positive are better than 50/50; otherwise I wouldn’t have entered it last week. However, the greater reason why I decided to re-write this entry when it got wiped out yesterday was to emphasize a very important fact that severely hurts the ability of the retail investor to build wealth. No matter how this play turns out, the fact is the information was there by mid-week to make a call on whether to enter this one or sit it out. It was absolutely unnecessary to wait until this week to make your decision.
It is quite apparent that investors still overwhelmingly overlook any information about foreign markets that can critically improve their decision making process. Furthermore, millions of investors today flat out just ignore stocks if they are not traded in their domestic markets. Because a great deal, if not most of the best performing stocks in the world will always reside outside of your domestic market, this attitude is self-defeating.. The time to adjust one’s perspective to a more global one was not even today, but over a decade ago. If you don’t adjust to a more global thought process, you can be 100% certain of only one thing — you will continue to leave enormous gains on the table.
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J.S. Kim is the founder and Managing Director of maalamalama, a comprehensive online investment course that uses novel, proprietary advanced wealth planning techniques and the long tail of investing to identify low-risk, high-reward investment opportunities that seek to yield high double-digit, triple-digit, and greater annual returns.
