Political Betting: 85-90% odds of increasing your money 50+% in 3 days

It’s November 3rd, 2012, the Presidential election has almost come to a close, and the popular vote is at a tie, 50% Obama to 50% Romney, and I’ve made a decent (for me) financial bet on the election outcome.

How does it make sense to make a large bet on coin-flip odds?  Because the electorate odds aren’t 50/50.  They’re closer to 85% Obama to 15% Romney, and therein lies an opportunity to make money!

Eight weeks before the election, I calculated the true electorate odds were 75-85% Obama.  I wrote an article explaining how to use a program to do this.

Now, 3 days before the Presidential election, the odds are even higher.  The New York Time’s baseball-Moneyball-wonderboy-turned-political-junkie Nate Silver predicts that Obama’s odds are 84%.  The Princeton Election Consortium, which has called every election nearly perfectly since 2004, estimates Obama’s odds at 98%.  The ElectionProjection.com, one of the web’s most reputable prognostication, says Obama will win and is now competing with everyone else to call the margin.  And it’s noteworthy that, across the world, odds makers from Vegas to London are putting Obama’s odds above 80-85%.

Now that horse is dead, let’s get into the sexier discussion of how to convert that knowledge into money.  If the odds-makers are all settings the odds 80-90% in Obama’s favor, how can one make any extra money betting he will win?

Enter Intrade.com.  This betting site lets users, instead of professionals, set the odds. When it comes to politics and betting, can people let their emotions run high and cloud their rationality?  All the time.  Despite nearly every professional stating 85-98+% odds, enough Romney supporters are betting against Obama on Intrade that Obama is a favorite by only 65%! Everywhere in the world, betting on Obama costs $85-90, but only at Intrade you can buy a bet on Obama for $65.  It’s like shopping at a huge sale!  It’s an awesome opportunity of a huge increase on your money with the SAME odds.

Let’s see the difference in how money increases on Intrade vs every other betting site in the world:
Intrade.  Buying a $65 bet on Obama which increases to $100 if Obama wins ($100/$65) = 54% increase
Everywhere else in world.  Buying a bet on Obama at $85 which increases to $100 if Obama wins ($100/$85) = 17% increase

Intrade allows you to make 217% more money (54%/17%) than all other betting sites for the exact same odds.

By making this bet, you have true odds of 85-90% of increasing your money 54% in 3 days and are buying at a huge discount to true odds.  You can’t get that in the stock market or a casino.

Some risk remains.  There is probably a less than 5-15% chance Romney could win, and if that happens, I’ll lose my entire bet.  But I’ll take 85-90% odds of a 54% return on my money in 3 days any day of the week.

The bet has been made, now I can only sit back and let it play itself out.

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November 5th, day before election:  Odds have increased to 86%-98.5%. Payoff:  52% in a single day.  Famed political predictor Larry Sabato calls Obama victory.  While the WSJ frames it as one of the “tightest races in history,” I am unaware of a single professional prognostication who calls for a Romney victory.  Poor guy.  Everyone is competing only to predict Obama’s margin of victory.  I would humbly offer that this is the difference between listening to the media reports, and reading the data yourself.

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Arbitrage:  After reading this article, my cousin, Troy Fielding, made an interesting inquiry.  Is there a way to exploit different market spreads and make money no matter what happens?  I researched it, and there is.  Buy Obama on Intrade.com at $65 and buy Romney on Bet365.com at $28.6.  If you add those together, you get $93.6.  When either of them win, you’ll get $100, which means a guaranteed profit spread of 6.4% ($100-$93.6) regardless of who wins!  Using large numbers, this could be thousands of dollars of guaranteed profit.  This is also a strategy to make the same profit, with zero risk, by simply betting 8.5x more money.  For example, bet $1,000 on Intrade for Obama (like outlined above), you’ll make $540.  If you bet $8,450 at 6.4% using market arbitrage, you’d make $540, but without any risk of losing!  It requires more capital, but it reduces the risk to literally 0%.

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Election Date Update:  I made $5475 on this bet.