Tradesports Contract: George Ryan Guilty – Payout Rules Killed This One

George Ryan was found guilty today and the contracts, one of the least traded on the site, didn't move. The total volume was only 20 contracts for what seemed to be an interesting trial. The last time this traded was in November and it never seemed to have any depth on the offers side.

The reason for this was the payoff rules which state that the contract will expire at 100 if: George Ryan is found guilty of at least one of the 22 charges alleging racketeering,corruption, fraud and conspiracy.

One of 22 is all it took to make this contract expire at 100, no wonder there were no offers. Tradesports got smarter with the Enron contracts which will only pay off if Lay and Skilling are convicted of half the charges. Think of it as a point spread for court cases.

By making the contracts more fair for traders they reveal less information about the event. For instance the Cheney.Resign.Dec06 contract trades at 16 currently, but since it can be triggered if Cheney leaves the office for almost any reason, its is actually showing the odds of Cheney resigning or dying and Bush dying since they would all trigger the contract. Clearly that's much less of a sound bite than what the contract appears at first glance. These rules would also make it difficult to use the contracts as a hedge. Would it be useful for Lay to hedge his case when he could still get convicted of three charges and have the contract expire at zero? For news events like Supreme Court nominations contacts are much easier to construct, for guilty convictions it is still a work in progress.