Tuesday, September 2, 2008

Trading the odds

Ritholtz reports that Intrade has launched a contract for betting on Palin being dropped for the Republican ticket before the election. In short, Intrade offers contracts for people to buy and sell to each other based on their estimation of the likelihood of some event occuring -- or not -- within a given time frame. The contracts are worth what any given individual believes them to be worth at any given time, given the current information he/she has on the subject.

Currently the Palin contract is trading at 14.0, meaning that traders believe there is a small chance she will get the big boot before November. If you think it's going to happen, you can buy at fourteen, and collect at 100 when the bus bounces over her. Contracts are valued between 0 and 100. Each point is valued at ten cents in the Intrade system. So for each contract you buy at 14 you'll get a profit of $8.60 upon Palin's return to the wacky world of AK politics.

When I started typing this, Palin contracts were trading at 13.9. They are up 0.1 in the last couple of minutes. They are up 11 for the day. One could conclude there is an upward trend to their value.

Incidentally, contracts that pay when Obama wins the election currently trade at 61.6. McCain is at 38.6. At the level of this market at least, the smart money is on Obama to reach 100 on election day.

I love this country.

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