Thursday, 11 March 2010

Inveterate gambler? [updated]

Nick Smith's piece in The Independent on iPredict is very nice (will link if it's ever online).
Economics brings out the competitive urge. Putting up the rate of GST was put at a 40 per cent chance until the Tax Working Group delivered its report and "suddenly it shot up to 80 per cent."

At the moment, iPredict's customers firmly favour a drop in the top personal rate to 33 per cent, an event so likely that the betting has shot up from 50 cents to 82c.

Even so, says inveterate gambler and University of Canterbury lecturer Eric Crampton, "at current prices, I'm buying a little 35-38 as a hedge."
Inveterate gambler? Moi?

On the whole, I tend to make pretty safe plays, which is why I'm only at about a 67% return on my iPredict portfolio. If I could redirect my university pension fund contributions to my iPredict account, I would; of course, my expected returns would go down a bit if everybody could go in large. I'm reasonably convinced that the deposit restrictions are affecting the prices of some of our longer term stocks where the option value of having liquid cash exceeds the returns of moving to proper prices a stock that's about 10 cents out but only cashes out in a couple of years: making the play to move the price sufficiently ties up too much capital. Absent those restrictions, I'd have fewer safe places to put cash for great returns as they'd be bid down to the time value of money in other markets.

My trading last year on the temperature stocks gave me 19% return but wound up tying up about $3000 for 6 months (and smaller amounts for a full year - I bought more as deposit limits allowed me to do so). These two stocks were very very close to sure bets (and became sure bets by last October), and I jumped up and down a lot both on my blog and on the iPredict blog showing exactly why they were sure bets. Informed traders knew full well that the prices were out of whack and were puzzled about why: top traders BKD and Pipe42 commenting on the iPredict posts. But the stocks nevertheless remained very high return relative to similarly secure investments - term deposits at the bank at which iPredict holds its deposits.

The vast majority of my portfolio was locked into the relatively low return climate stocks for a very long time; I'm rather pleased that I'm still managing an overall 67% return.

On tax trading, I'm long both 33-35 and 35-38, short 30-33. Relatively small positions in all, but I have big standing orders a couple of orders away from current prices: buying as much of the first at $0.80 and of the second at $0.10 as anybody cares to sell me (they were high bids when I posted them); selling 30-33 at $0.075 (well out of the money at this point).

Having more cash than portfolio is exhilarating. Nothing but 100 unit orders. Can put orders all over out of the money and hope for spiky nibbles from uninformed traders running the book. Excellent. If you haven't maxed out your deposits yet....

I'd say inveterate trader rather than gambler. iPredict is a futures exchange, not a betting market.

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