Monday, June 18, 2012

Romney-Obama Arbitrage on Intrade

I wrote about the prediction market Intrade two weeks ago and have kept visiting their site intermittently. There's a (nearly) risk free way to profit from arbitrage regarding the upcoming U.S. presidential election, and I'm going to show you how! *Some regional restrictions may apply.


Right now, you can buy shares betting Obama will lose the election for $5.27 each, and you can buy shares saying Romney will lose the election for $4.15 each.

So what happens if you buy 100 shares of each? If Obama wins you lose $527 on one side and make $585 on the other, a profit of $58. If Romney wins, you lose $415 on one side and make $473 on the other, also a profit of $58. It works out to a roughly 6% return on your money in 6 months -- not bad!

So what's the catch? There are several.

1. Intrade charges a $4.99 monthly fee, and the election is six months away, which knocks out $30 worth of your profits (unless, by chance, you already have an Intrade account).

2. Intrade is located in Ireland, and its legality in the U.S. is still unclear - some zealous prosecutor might consider it to be online gambling, possibly making it hard to withdraw your money afterwards.

That's why I won't be laughing this opportunity all the way to the bank.

The existence of arbitrage opportunities like this demonstrates that the Intrade betting market is still pretty thin, or else this difference would have been exploited away already. So have at it.

(Note I'm not a financial expert and haven't studied the legality of this strategy in depth, so attempt it at your own risk. This information is provided for entertainment purposes only)

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