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Oct 05

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Earn Great Returns Betting on Presidential Debates

How much did Mitt Romney gain from the debate on Wednesday? The media consensus appears to be that he was the winner.

How much could you have gained by betting on the debate? 100 Romney shares purchased on Intrade at close on the 3rd could have been sold at a gain of $75 at close on the 4th.  At a purchase price of $2.59 a share, that’s a 29% return overnight.  (Admittedly, one might consider day-trading on presidential debates fairly risky, thus warranting such a high return.)

Intrade is an Ireland-based “prediction market” that allows traders to purchase and trade shares of predictions relating to the outcomes of events ranging from presidential elections to earthquakes.  Each share has a settlement value of $10 if the event occurs, $0 if it does not.  In other words, if you are holding a Romney share on November 6 and he wins, the value of your share is frozen at $10, and your gain will be $10 less your purchase price.  On the other hand, if your candidate loses, the value of your share is frozen at $0, and you will have a loss equal to the price you paid for the share.

The increase in price of Romney shares suggests that Intrade traders believe that the likelihood that Romney will be elected president increased from about 25 percent to 33 percent after the debate.  This was the biggest single-day increase in Romney shares since the January 26 debate in the primaries.

Conversely, it was also the biggest decline for Obama shares since May 2011.  While Intrade still shows a 69 percent probability of an Obama win in November, it would appear that since Wednesday night’s debate, the race has become a whole lot closer.

About the author

Ellen Hermann

Ellen Hermann is a consultant at Fulcrum Inquiry. Her background is in intellectual property valuation and damages.

Permanent link to this article: http://betweenthenumbers.net/2012/10/earn-great-returns-betting-on-presidential-debates/

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