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How should one trade @kanyewest's presidential campaign in the @PredictIt presidential market?
Let's assume Kanye has 0 chance (probably about .01%-.1% in reality). If one maxes no at .99 you can make 858*.01*.9 or $7.72 in four months. If you're already maxed no Yang, Cuomo,
Let's assume Kanye has 0 chance (probably about .01%-.1% in reality). If one maxes no at .99 you can make 858*.01*.9 or $7.72 in four months. If you're already maxed no Yang, Cuomo,
and Hillary this is just a free $7.72 so it seems good. But what if instead you bought 10k 1c Kanye shares for $100 and tried to sell them all for 2c? Let p be the probability that such flipping works? Then your expected payoff is 100*.9*p - 100*(1-p) > 7.72 if p > .567.
Thus there is a higher expected profit flipping 10k 1c Kanye shares for 2c if there is even a 57% chance of the maneuver working. Given that Andrew Yang who had about the same chance of winning the democratic nomination as Kanye does of winning the presidency got above 10c, I
think it is quite likely (80%?) that Kanye will be pumped to 2c on significant enough volume to make such a flip because all it requires is that he makes some splash in the news between now and November.
If you believe this argument and buy 85k 1c Kanye shares, your
If you believe this argument and buy 85k 1c Kanye shares, your
expected payoff is .8*850*.9-.2*850 = $442 which is a whole lot more than $7.72. Even if the 80% figure is wrong, expected value wise one only need a 53.1% chance of such a flip for this to break even with the 99c no max trade.
Looking at trading volume statistics, it appears once a candidate has over 1.4M active shares, the negative risk traders are overwhelmed and the candidate can be pumped quite high (because of $850 contract limit per trader). Right now Kanye has 590k active shares, so just 10 guys
maxing at 1c could blast the entire negative risk barrier. This seems rather likely so even if you intend to buy no only, it's probably better to sell at 99c and set a new buy order at 98c and or 97c and wait for it to be filled.
