Our favourite Derivatives Market Idea Ever: Movie Derivatives.

Think Twilight: New Moon might not be the smash hit everyone expects? Right now all you can do is prognosticate about the box office take to your friends. It’s not publicly traded and there aren’t any easy ways to short the box office.

But that might be about to change. Today the CFTC began seeking comment on an application for futures trading on box office returns.

The MDEX was formed in April 2007 to operate as an electronic exchange for contracts based on movie box office revenues. The idea is to allow movie makers to offload risk to outside investors in exchange for premiums from the returns.

According to MDEX, there will be contracts on a wide range of substantial risks.

  • Production Risk – The risk that the movie is not produced on schedule or is not produced
  • at all. 
  • Budget Risk – The risk that the production of the movie exceeds its budget.
  • Release Schedule Risk – The risk that the movie is not released on time and is late to
  • market.
  • Revenue Risk – The risk that the movie underperforms at market, and does not generate
  • the expected level of revenues.

It will all be done by electronic trading. And, like you, we’re not exactly sure how this stuff will work. But it sounds fun. The MDEX plans to use the Minneapolis Grain Exchange to clear transactions on its markets.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.