Tuesday 10 August 2010

Hedge that risk...

I've been arbitraging a bit between iPredict and CentreBet. iPredict's prices on Labor tend to be high relative to those at CentreBet. So I'll leave some largeish orders up at iPredict, both near and away from current trading prices. When I accumulate too large a Liberal position (both long Liberal and short Labor), I lay that risk off at CentreBet. So I'm not making pure arbitrage plays because I'm not executing the trades simultaneously - it's more like hedging the risk of a Labor win. But it's not far off from pure arbitrage.

At last update, a Labor win would have me up $43 and Liberal would have me up $370. Both are net figures.

More trading in the interval: a Labor win will now have me exactly flat: gains at CentreBet completely match my losses at iPredict in that case. But if the Liberals win, I'm up $542.

Buying contracts at CentreBet that would pay off at $542 in the event of a Liberal win would cost me $231 at current prices, so I guess that means that straight arbitrage trading has put me up a couple hundred bucks so far.

iPredict traders reading here: please please keep buying Labor from me (selling Liberal to me) at prices far away from what CentreBet charges. I'm rather enjoying this.


  1. Why not convert your position to one where you win both ways? Seems far more satisfying. It seems likely Labour will win, so whilst it will be gratifying to say "I had all these bets on the Libs, but even when Labour won it cost me nothing", surely you'd get much more pleasure from "my position meant I won either way".

    My personal satisfaction curve would have me making more for a Labour win than a Liberal one - since my happiness at a Liberal win would mean I don't need much financial reward to compensate.

    Reminds me of my father in law telling me he bet on the Wallabies to win the Bledisloe, so that if the All Blacks lost he'd at least have some consolation.

  2. Short answer: because Labor contracts are expensive and I'm not without liquidity constraints. I have a whole ton of free cash sitting at iPredict since some other contracts closed; playing at CentreBet requires sending them money. And cashing money out of iPredict to send to CentreBet is something I don't want to do given the deposit limits at iPredict. Whichever side wound up relatively cheap at iPredict would be the one I wound up taking a long position on.

  3. Hmm. So the liquidity constraints at iPredict are working to distort the market. I guess I knew that, but an interesting specific example nonetheless.