Intrade, a futures market which allows users to buy and sell contracts for specific events, is a great tool for political pundits. The theory is a futures market works better than either polls or “fundamentals” because people, when wagering their own money, tend to be much more mindful of “reality.” Also, polls and “fundamentals” can be merged in a futures contract.
Two contracts which interest me right now are the “2008 McCain to Win” and the “MN Senate GOP to Win” contracts.
McCain’s contract is selling for a paltry 17 bucks (to earn 100)
While I like using Intrade as another tool punditry, I will say this contract is undervalued. I would be long this contract and I would expect it to move into the $35 range and I would probably sell it at that point.
No matter what, this contract’s price paints a very bleak picture for November’s general.
Over a year ago I said the Coleman to Win contract was too high and I recommended selling. Now, at 47-49 bucks, I think the contract is properly priced. What’s interesting is the Dem to Win (Franken) contract is very expensive. It’s in the $ 60 range. When summed together, the costs of the various MN Senate contract total over 108 bucks (to win 100). There is some obvious inefficiency in the market. The first obvious culprit is the $60 Franken contract.
But, based on the polls I’ve seen, Coleman is the underdog in this race. Right now, I don’t want to be in either the Franken or Coleman contracts. The next round of polls might completely push the Franken contract over $70. Just as likely, Coleman could close the gap. And remember, with the Independence Party candidate polling at nearly 20% right now, it’s very likely between now and election day those voters are going to break in Franken’s direction.
The situation in MN is very complicated. If forced to buy one contract or another, I would buy the Franken contract, even though it might be overpriced.
The bad news continues