Oct 24, 2004

Election arbitrage

I was just looking over the current prices from tradesport.com and figuring out exactly what the traders there thought about various aspects of the election. One interesting thing is that you can currently buy the "Presidential Election Ceritified by Dec 13,2004" contract for $85 and the price has been dropping. It is a hard to imagine any legal or counting challenges this year not ending at least as quickly as in the 2000 election, and that would be contingent on an election close enough for it to be worth challenging. That contract is probably a buy in here and certainly if it sees $75 or lower as the media hypes up the chances of a contested vote.

Another interesting prospect is that for $13 you can sell a contract that will be worth $0 if Pres. Bush fails to win 350 electoral votes. The odds of that seem a lot smaller than 13% at this point. That contract has been falling steadily and it seems like it will continue.

Lastly you can buy a contract that Kerry wins the Rustbelt (PA, OH, and MI) for $38 while you can hedge by betting that Bush wins OH for $55. If Bush actually wins OH this combo pays you $7 and can only loose money if Bush loses OH but wins in MI (trading at $26) or PA (trading at 31). Other combinations like Kerry winning New England are trading much closer to parity against their weakest link. This is to say that if you buy Kerry winning New England for $55 and also buy Bush winning NH for $49 you have become a net loser just with the bid offer let alone the 5 other states Bush could win with one of them being Maine which is trading similar to MI.

All of these contracts have relatively wide bid/offer spreads so it probably pays to be patient and to expect to hold throught the election rather than trade in and out.

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