Tuesday 2 March 2010

Centrebet vs the market

Peter Martin reports that somebody's just staked $29,500 at Centrebet that there will be no change in the Reserve Bank of Australia's official cash rate (in 2.5 hours). The story says he stands to gain $21,000 if there's no change. So he's paid $29,500 for a contract paying out at $50,500 in the event of no change: he's reckoning on well above even odds that there will be no change.

That contract is running at $0.34 at iPredict. A trader tells me the market's priced in a 60% chance of a 25 point increase. Why take the worst odds on offer? Egads.

I'm long on no change at $0.33, but I sure wouldn't be paying $0.584 for that contract.

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