Monday, November 14, 2005

Mouth-money colocation

I just opened an Intrade account today (it's the political part of the Tradesports franchise) and bought a few Edwards nomination futures at $6.50. If Edwards wins the nomination, these turn into $100 -- if he loses they turn into $0. 15:1 odds seem a little high for Edwards -- 6:1 would strike me as more reasonable. Apparently traders didn't see his mea culpa in the Post as the smart move that I did. I also have an open order for Clark at the low low price of $2.60. If Clark's still on the map in October 2007, I'm pretty sure I'll be able to sell these for a nice profit.

The two top picks on Intrade are Hillary, in the 40s, and Mark Warner, who shot up from $9 to $18 after the Kaine victory. If I had the guts to go short, I'd be short them. There's lots of good stuff to be said about Warner, both in terms of his chances of winning and his actual quality as a nominee, but I don't think he's firmly in second place yet. As for Hillary, it's unclear whether she's going to run, and it's even less clear whether she can lug that pro-war position to victory. I hear her fundraising power is pretty fearsome, though.

10 comments:

Rousseau said...

I feel the same way you do, as well as a number of other ideas (such as Ygeslias's points about a George Allen inevitability). If you want to send me a invitiation so you can get the reference bonus, send it on over to me.

Rousseau said...

Btw, I feel while Warner hype in general is a bit high, at 18 Warner is probably under-valued. He's the second name out there. Uncertain about Hillary bunches (see my latest post). McCain, over-valued and will never win a Republican primary - if you are going to short anyone, it should be him or Giuliani. Huckabee, definitely undervalued.

Neil Sinhababu said...

Complete agreement on Allen/Huckabee/McCain/Guiliani, Tony . I'll see if they have a reference bonus -- I didn't see signs of one.

Bill said...

If they have that reference bonus, toss a reference over my way as well.

Bill said...

Am I missing something, or is there a rather large arbitrage on the Alito contracts?

Neil Sinhababu said...

I'm not seeing it, Bill. Maybe somebody arbed it already... if not, can you point it out to me?

It could make for some interesting arbitrage if the "Alito over 70" price fell below the "Alito over 80" price, but I don't see anything like that.

Rousseau said...

Well at the moment, the price for Alito passing is 83, but the price for him getting over 50 votes is 93. So buying "pass" and selling short on "over 50" should net some profit.

Although it's possible the "will get X votes" is dependent on him getting to the Senate floor, and if he doesn't your contract doesn't fail, it just is refunded.

Given a 9% chance of him not making it to the Senate floor, these prices would make sense.

Neil Sinhababu said...

Tony, I think that's how it works.

For the Total Affirmative Votes received, the following Rules will apply:
- All vote contracts will be unwound if the nominee fails to get an up or down vote on the US Senate floor.
- All vote contracts will be unwound if the nominee is officially withdrawn for any reason

Bill said...

Aha. This makes sense now. I just was unable/unwilling to find the rules on the site. This removes the arb that I was seeing.

I also thought there was an arb with the prices violating convexity in strike space, but then I remembered these are binary options, not vanilla ones, so the butterfly is not continuous.

Neil Sinhababu said...

Bill, sometime I'll have to ask you about how you arb nonconvexity in strike space. I can see how there's potential good deals there, but I don't see how you can get risk-free arbitrage goodness.

I've contacted the Intrade folks about getting a referral code -- I get a $25 bonus and you get $50, so it's an awesome deal. I'll get back to you when they get back to me.