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Intrade on Obama

I have to wait two more days before I can give my final analysis on the conventions and their effect on pWP in this POTUS race. However, I did want to post something on Intrade.

Intrade, if you didn’t know, is a futures market where you can buy or sell contracts based on the outcomes of future events. The contracts are priced from 0 dollars to 100 dollars (a contract pays $100 if the event comes to pass, zero dollars if it does not). Thus, an event that traders think is unlikely to happen will be cheap; an event very likely to happen will be expensive. It’s a real market with millions of dollars at stake, and it should be taken seriously.

Here is the most recent chart on the Obama to Win contract:

As we can see, except for a small dip in June, the Obama contract has been trading between $55 and just over $60. So, according to the market, Obama has a 60% chance to win re-election (or put more accurately, members in this market are willing to risk $60 for a $100 payoff, a profit of $40, on Obama’s re-election).

This is in stark contrast to my pWP, which had Obama at a 68% chance to win re-election before the conventions (it currently sits over 80% now). The conventions produced almost no effect on traders (and they’re probably right about this, still, it’s an interesting factoid).

Traders think Obama has a good chance to win, but they’re not as confident in the contract as the polls suggest they should be. So the question is, what information does the market have that we don’t, since based only on the polls Obama’s contract should be trading higher. Either the market believes the pollsters are doing their job wrong, or that independents and undecideds will break slightly toward Romney, or that there’s a liklihood future events will shift the race in Romney’s direction.

Based on my pWP, the Obama contract is a buy, and Romney’s (sitting just under 40 bucks) is a sell. If you believe there will be more bad economic news, you might want to think about buying into Romney now. If you think (as I do) that the economic news will continue to be flat (neither positive nor negative), Obama’s contract looks pretty good.

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