Monday September 23, 2002

So you want to buy some bonds, but you’re not sure where to start. TAG, adjust, credits. What are all these things? Here in one place is the answer to all your questions. Well, maybe not all of them, but hopefully most of them. Or at least enough to get you started.

First, Some Basics

A trader can own up to 20,000 shares of any StarBond.

StarBonds are credited for acting and directing credits based on HSX guidelines. If a star both directs and acts in a movie, he only gets credited once for the movie. Only actors and directors will be credited for a particular movie. Producers, writers, or anyone else will not be credited. The current HSX guidelines are that credits are based on the star’s inclusion in the official movie press kit. Other sources, such as IMDb, movie posters, and Hollywood news sites, are not used to determine credits for HSX purposes.

Keep in mind that movies in the concept, development, and sometimes even production stages will often not have stars attached yet. It’s also important to remember that credited StarBonds do change over time as stars join or leave movies. This is true even for movies about to be released. HSX has the final say on which bonds will adjust for a particular movie. Check the Stars Board and the Announcements Board at HSX, along with the movie and StarBond detail pages, for updates.

StarBonds adjust the day after their credited movie is delisted from HSX. Movies are generally delisted on Monday, so bonds will generally adjust on Tuesday. Check the HSX Calendar for delisting movies and corresponding StarBonds eligible for adjust, as well as changes to the normal schedule. Bonds eligible for adjust will halt trading at 6 PM ET the day their credited movie is delisted.

Each StarBond has a Trailing Average Gross (TAG) based on the cumulative box office gross of its latest five credited films. The price of an adjusting bond is adjusted to its new TAG and remains frozen but unhalted until the next market reset, around 1 AM ET. TAGs are actually updated weekly based on the current box office of any credited films still in release, however, a StarBond’s price will only be adjusted to match the TAG when a credited film is delisted.

HSX uses box office gross as reported by ERC to calculate TAGs and bond adjusts. In most cases, this is the same box office gross used for movie delists. Occasionally, however, movies will report box office receipts to sources other than ERC. In these instances, HSX will delist a movie based on the box office gross reported to the non-ERC sources. However, this box office gross will NOT count towards anyone’s TAG and stars attached to these movies will not adjust. Only ERC reported numbers will count towards a StarBond’s TAG.

Since a StarBond’s TAG is based on the cumulative box office from its credited movies, movies which go straight-to-video or straight-to-cable are not included in the TAG. Since these movies were never released in theaters, they don’t have box office receipts to include in the TAG.

TAG Calculation

As stated above, every StarBond has a TAG based on the cumulative box office of its latest five credited films. The TAG is calculated as the sum of the box office gross divided by five. We’ll use Tom Hanks (THANK) to illustrate.

THANK’s TAG would be (216.335 + 115.821 + 245.823 + 136.801 + 233.630) / 5 = 189.68.

If a bond has fewer than five films in its TAG, the sum of the box office gross is divided by four if there are four films in the TAG or three if there are three or fewer films in the TAG. We’ll use Johnny Knoxville (JKNOX) as an example for this one.

JKNOX’s TAG is (7.262 + 6.045) / 3 = 4.44. Notice that the total box office is divided by 3 instead of 2.

As mentioned above, when a StarBond adjusts, its new TAG and, therefore, its adjust price include any additional box office for movies already in its TAG, along with the box office for the just delisted movie. For example, Jason Isaacs (JISAA) adjusted for Black Hawk Down (BHAWK) which delisted from HSX with a cumulative box office of $86.716 million. The movies and box office in JISAA’s TAG following BHAWK’s delist were:

This gave a TAG of (14.623 + 10.660 + 113.330 + 25.178 + 86.716) / 5 = 50.10.

JISAA’s next credited film was Windtalkers (WINDT). When JISAA adjusted for WINDT, BHAWK was still in theaters. JISAA’s new TAG was calculated to include the additional box office for BHAWK since it delisted as well as the box office for WINDT giving:

JISAA’s new TAG became (10.660 + 113.330 + 25.178 + 108.639 + 36.602) / 5 = 58.88. Notice how the box office for BHAWK jumped from $86.716 million to $108.639 million to account for its additional box office since it delisted.

The last important thing to remember when calculating a StarBond’s TAG is that the box office included in a TAG for a particular film is capped at $250 million. George Lucas (GLUCA) is a great example of this.

Each movie is included at $250 million instead of their full gross resulting in a TAG of (250.0 + 250.0) / 3 = 166.67. Remember, the sum of the box office is divided by three since there are only two movies in the TAG.

Adjusts

Now that we’ve covered how to calculate a TAG, the next step is figuring out the adjusts. To determine what a StarBond will adjust to, we need to calculate its new TAG. If a bond’s TAG contains five films, its new TAG is calculated by dropping the film with the earliest release date from the TAG and replacing it with the box office to date of the just delisted film. If more than one film share the same release date, the one with the smallest box office is dropped first. Remember that it’s release date that matters not delist date. This means it is possible for a limited release to be removed from a star’s TAG before a wide release that delisted first.

Continuing with our Tom Hanks example, Hanks’ next film after Castaway was Road to Perdition (PRDTN) which delisted from HSX with a four week box office gross of $77.153M. To calculate THANK’s new TAG, Saving Private Ryan is removed and Road to Perdition is added, leaving:

THANK’s new TAG and adjust price is (115.821 + 245.823 + 136.801 + 233.630 + 77.153) / 5 = 161.85.

If a StarBond’s TAG contains fewer than five films, the current film is added to the TAG and none are removed until there are five films in the TAG. Again using our example from above, Johnny Knoxville followed up Deuces Wild with Men in Black 2 (MIB2). Men in Black 2’s box office at delist was $173.381M. Since there are not yet five films in JKNOX’s TAG, we simply add in the current film.

The new TAG and adjust price for JKNOX is (7.262 + 6.045 + 173.381) / 3 = 62.23. Note that we’re still dividing by three to calculate the TAG. When Knoxville’s next credited film is delisted, it will be added to his TAG and the sum of the cumulative box office grosses will be divided by four.

There is often a lot of confusion over how the adjust will work if a StarBond is adjusting for two movies on the same day. If a bond is credited for two films delisting on the same day, both films are added to the TAG, the films with oldest two release dates are removed, one new TAG is calculated, and one price adjustment to the new TAG is made.

To illustrate this, let’s take a look at Danny Trejo (DTREJ). DTREJ adjusted on the same day for XXX (TRPLX) and Spy Kids 2 (SPYK2). Here are the films in DTREJ’s TAG before adjust:

These combined for a TAG of (74.339 + 23.361 + 112.692 + 5.002 + 0.667) / 5 = 43.21. Now we need to calculate a new TAG based on the simultaneous adjust for XXX and Spy Kids 2. The two movies with the earliest release dates are removed and the two new movies are added giving us:

This results in a new TAG and adjust price for DTREJ of (112.692 + 5.002 + 0.667 +73.900 + 125.501) / 5 = 63.55.

Wrapping Up Some Loose Ends

After a long hiatus, HSX is now IPO’ing new StarBonds on a regular basis. StarBonds are IPO’d at approximately their next anticipated adjust price discounted for how far off that adjust is. Occasionally, a StarBond will be IPO’d with no movies already in its TAG. A bond will not adjust for the first film in its TAG.

If a star passes away or requests to be removed from the exchange (yes, that actually happened once), his/her StarBond will be halted and delisted at its current TAG. Note it will delist at its current TAG not its current price.

There will be occasional instances when HSX delists a large amount of bonds at one time, similar to dead movie delists. According to the official HSX announcement, StarBonds for actors who have not worked steadily in recent years are subject to delist. These bonds will be delisted at their current TAG. The first bond delist was in September 2002. HSX hasn’t stated how often bond delists with occur but they did indicate they will occur less frequently than delisting of dead movies.

Now that you understand how StarBonds work, you’re ready to buy some for your portfolio. But wait, you say. How do I know which bonds are good investments? Only you can decide which bonds to invest in, but we’ve provided some tools to help you, the HSBR Bond Charts.

Good luck and happy trading.