Long-Term Value Play

**Mudcat** · 10-06-05, 10:00 AM

Seems like okay value. The current US political climate seems ripe for something freakish to happen (or so it seems from my outsider's perspective).

Maybe that McCain dude could end up Independant.

Probably not but any time you're talking about +50000, you're starting with the assumption that it's "probably not."

**Senator7** · 10-06-05, 10:19 AM

All of my professional experience is in politics. My degree is in political science and I've worked for a ton of campaigns over the last 4 years. An Independent will not be winning the White House anytime in the near future. The political party system is built to make that impossible. I know the odds seem nice and the value is good, but, trust me, you'll just be throwing your money away.

Senator 7

**Ganchrow** · 10-06-05, 11:08 AM

Originally posted by Senator7

All of my professional experience is in politics. My degree is in political science and I've worked for a ton of campaigns over the last 4 years. An Independent will not be winning the White House anytime in the near future. The political party system is built to make that impossible. I know the odds seem nice and the value is good, but, trust me, you'll just be throwing your money away.

Well, all of my professional experience is in math, economics, and finance and what I've learned from that over the past 15 years is that if you're able to buy at a price lower than that at which you can sell then you've got a pure arbitrage opportunity.

The only issues as far as I can tell are:

The true bid-side (or thereabouts) depth of the exchange market for the ! independent wager.
The exchange margin requirements and/or the flexibility thereof.

As far as the value of the bet itself goes I posit this question: if the 2008 election were held 1,000 times 3 years from now how many times would you expect an indie candudate to win? Given our current political climate it would not surprise me to see an indie win as much 1% of the time. (Remember that there have been two or three instances over our 55 election history when a candudate of a relatively newly formed political party won an election -- I'm going to say Jackson, Harrison, and possibly Lincoln, although you could certainly poke holes in all of them.)

Anyway, the point is that the proposition, while highly unlikely, is well short of impossible.

**Senator7** · 10-06-05, 11:12 AM

Sorry Ganchrow, I didn't know you were looking at it from a mathematics or statistics standpoint. Mathematically, the wager has value. I've actually made quite a bit of money betting politics. Take it from someone with friends in high places, the winner in 2008 will be a Republican or a Democrat. I don't know the mathematics of these wagers, but I do know politics and I would not take this bet.

Senator 7

**Ganchrow** · 10-06-05, 11:25 AM

Originally posted by Senator7

Sorry Ganchrow, I didn't know you were looking at it from a mathematics or statistics standpoint. Mathematically, the wager has value. I've actually made quite a bit of money betting politics. Take it from someone with friends in high places, the winner in 2008 will be a Republican or a Democrat. I don't know the mathematics of these wagers, but I do know politics and I would not take this bet.

Sounds to me like you're ignoring the tails of the distribution.

It's quite easy to say, "The winner in 2008 will be a Republican or a Democrat." and be correct, because chances are higly likely you will be correct. Just don't fall for the trap of thinking that just because a favorite is extremely likely, it's a sure thing.

With three long years until the election, highly volatile political, social, and economic climates, it's my opinion that this contract, which amounts to a deep out of the money call option, has value.

**jjgold** · 10-06-05, 11:25 AM

No way

We are not that liberal

Very Dumb bet

**EBone** · 10-06-05, 11:30 AM

Guys,

The point is that Ganchrow is getting exceptional value for a bet on an independent. From what I can gather from Ganchrow's posts, he's looking for value, not necessarily a winner with this bet.

My only issue with the bet is having this bet out there for 3 years. I mean, strictly from an arbitrage(scalping) perspective, you might be able to put the money you bet on an independent in a 30 month CD and be able to make more than what you'll make on the scalp. Just an opinion.

E

**Ganchrow** · 10-06-05, 11:41 AM

Originally posted by EBone

My only issue with the bet is having this bet out there for 3 years. I mean, strictly from an arbitrage(scalping) perspective, you might be able to put the money you bet on an independent in a 30 month CD and be able to make more than what you'll make on the scalp. Just an opinion.

I'd have to say it's the other side of the bet (the exchange side) where the margin requirement would figure in. If the true odds of the event occuring are, say, 1%, then the 3-year return to the sufficiently risk-neutral investor is 401%, which annualizes out to 71.11% per year. Certainly well above any typical cost of carry.

**Ganchrow** · 10-06-05, 11:43 AM

Originally posted by jjgold

No way

We are not that liberal

Very Dumb bet

I didn't even think of that. Good point. Thanks for clearing that one up.

**EBone** · 10-06-05, 12:39 PM

I ask a lot of dumb questions and here comes another one for you, ganchrow: I would assume that if you bought the +50000 @ Olympic then you would also buy a democrat and republican at INTRADE for some value (lets say Republican @ +150 and Democrat @ +175). If this is the case, then I recant my 30-month CD comment and yield to your facts.

Am I correct in that assumption? Since you said this is a "pure arbitrage opportunity", I would assume that this is what you are trying to do. Or can you make an offer on INTRADE for a price lower than the market price on INTRADE but higher than that at which bought @ Olympic.

This is real interesting to me and I want to be clear on how this would work. Forgive me if my questions are 101ish.

On a side note: ganchrow, have you ever done currency trading before?

E

**BuddyBear** · 10-06-05, 01:17 PM

The American political system is on the brink of a major collapse.
Nowadays, scandal is the rule not the exception. You look at the Republicans who have the culture of corruption that seemingly surrounds everyone of their leaders whether it is Delay, Frist, Bush, Rove, Blunt, etc...Democrats are hardly better in their handlings as a lot of people forget they "raised" more money in the 2004 election.

I like Mudcat's point about McCain...although I am not a Republican by any stretch of the imagination...McCain seems to be more or less an economic conservative and is very sensible. He has a lot of credibility and quite frankly he is very distraught with his own party these days. Bush is about to veto a bill he developed that says something along the lines that America should not committ toture which was passed 89-11 in the Senate just to give you an idea about the extremes this administration is going to.

And to be honest, I don't really give a one **** about Democrats either as they are complicit in a lot of this bs in American politics.

But the Republican party has become so dangerous now in terms of their designs for society. You are talking about a group of people who are fevershly trying to dismantle every piece of progressive legislation ever passed in this country. Whether it is social security, gay rights, women's rights, civil rights, worker's rights, civil liberties, the right of an individual to bring a law suit, whether an individual can declare bankruptcy, environmental laws, student's rights on campus, and this does not even include a foreign policy that is fraught with agression and goals of empire.

I'd love to see an Independent win. It would be a step in the right direction.

**Ganchrow** · 10-06-05, 03:01 PM

Originally posted by EBone

I ask a lot of dumb questions and here comes another one for you, ganchrow: I would assume that if you bought the +50000 @ Olympic then you would also buy a democrat and republican at INTRADE for some value (lets say Republican @ +150 and Democrat @ +175). If this is the case, then I recant my 30-month CD comment and yield to your facts.

I'm going to guess that you missed a decimal point when looking at the Intrade market. The bid price for the contract "Any other [non-democrat/republican] candidate to win 2008 [US] Presidential election" is 1.7 meaning that you can sell this contract (called "PRESIDENT.FIELD2008") at -98.3/1.7 * 100 ≈ -5,782. Conversely, one can buy the Olympic bet at +50,000. Buying at +50,000 and selling and -5,782 is a good thing. Am I getting you correctly here?

Originally posted by EBone

Or can you make an offer on INTRADE for a price lower than the market price on INTRADE but higher than that at which bought @ Olympic.

An Intrade price of about 0.2 would obviously be break-even before cost of carry.

Originally posted by EBone

On a side note: ganchrow, have you ever done currency trading before?

Nope. Equity derivative quant trader.

**Ganchrow** · 10-06-05, 03:03 PM

BuddyBear, I'm a die-hard social liberal. You're preaching to the choir with me.

**Bill Dozer** · 10-06-05, 03:46 PM

Trying to figure out the probability of occurrence is the name of the game. Those of us who do this accurately can make some cash on the underdogs. Since most players bet on the chalk, the books put a little extra out there for the dog backers. When we bet that value we get better than what we figure are the actual odds of occurrence.

I think Ganch is saying that he won’t necessarily hold the bet until the election but likes his position for when trading opens and more places start offering odds. He knows he won’t be able to sell it because there isn't a market for the event yet. (Maybe there are other places selling it?)

This is a great thread. Most players who are identified by the books as sharps and scalpers don't put any money at risk until they can see where the market is.