Friday, September 19, 2008

Intrade Arbitrage Opportunity

While wasting time surfing the election prediction websites (see my earlier post), I noticed that according to the most recent trades, the Intrade odds of the Democratic nominee winning Ohio is 53.9% and the odds of the Republican nominee winning is 55.0% (probably different, of course, by the time you click the link).

Hmm. Apart from what this says about the usefulness of Intrade, it's an obvious arbitrage opportunity. If you could sell $1,000,000 worth of contracts predicting Obama will win Ohio for $539,000 and $1,000,000 worth of contracts that McCain will win for $550,000, you'd pocket $1,089,000 and only have to pay out $1,000,000 to the winner, for a profit of a cool $89,000 (less commissions). And if by some miracle Barr or Nader wins Ohio, you get to keep the whole thing.

Well, I would leap to it, but I presume it wouldn't actually work in any amounts large enough to make it worth the effort. You might manage to sell two $100 contracts at the most recent prices for $53.90 and $55, yielding you a whopping $8.90 (less commissions), but I presume the prices would change pretty dramatically if you tried to make this work in larger amounts. Still, in case you thought Intrade prices were rational, they clearly aren't.

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