Playstation 3 Contracts

If you've been following the saga, its very unlikely Sony will meet its planned Spring release for the PS3. By May its nearly impossible. The market agrees, which is why the contract sells for 6. But if you've got some extra $ lying around becuase you're shut out of the financial contracts and don't follow American Idol it's a good fire and forget trade. Place it and collect on expy.

Ugliest thing I've seen all day

A relatively recent change in policy at Tradesports has made it impossible for US traders to trade nearly all of the financial contracts. No economic numbers, no oil, no gold. The effect on the market is exactly what you would expect.

This screenshot (Photoshopped for size but otherwise unchanged) says it all. No liquidity anywhere. No offers, no buys, no sells, basically no point. This is utterly useless for any of the promised benefits of an idea futures marketplace. Ohh, but you can still bet on Dow up or down every day.

This moves Tradesports even closer to be a marketplace for gimmicky trades (American Idol, Academy Awards) and sports gambling and further away from a serious financial marketplace, the direction Hedgestreet has taken

Tradesports Opportunites - Financial Contracts

2/28/2006
Existing Home Sales – Even beautiful weather couldn't save New Home Sales. The inventory buildup has already begun. The Trade: Softly sell the above consensus contracts. This will be a tough contract to get good prices on.

3/1/2006
ISM Numbers – After three straight months of declines will it finally perk up? The market thinks so. Consensus is for a 56 up from last months 54.8. Drilling down gives mixed signals, the employment section declined and new orders (the most important part of this release) also showed a small decline. But Backlog Orders were up and New Export Orders surged. The Trade: I'd stay away from this one unless you can make the market by selling high above consensus. The smart bet here is staying on the sidelines.


Personal Income and Spending– How long can we sustain a negative savings rate? That question has made fools out of too many forecasters for me to venture a guess. Consensus is at .6% for Personal Income and the guesstimates on this one are generally pretty close since it can be estimated from other similar releases. The Trade: After the huge rise in retail sales Personal Spending at .6% (at 90) , .8% (at 80) and 1% (at 55) are all reasonable longs. Fuel prices are the only "gotcha" here.

3/2/2006
Initial Claims – There are some numbers that you should never trade. This is one of them.

Hedging For Dummies

In this Forbes article (reg required) HedgeStreet is taken to task for its wide spreads and poor volumes. Some of the more wince-inducing quotes:

"Indeed, the pathetic trading volume, gaping bid/ask spreads and ridiculously short contract maturities (rarely stretching beyond 7 days) are enough to make any intelligent investor's hair curl."

"Trading volume last year was all of 1 million contracts, worth $5 million. By way of contrast, the Chicago Merc does $3 trillion in one day of trading."

As more relavent issues to Risk Market followers are costs, "Take a $59 oil Hedgelet maturing Feb. 15 (the latest available on Feb. 14). Buy it and you collect $10 if oil's ending price is above $59 but nothing if the price ends at or below $59. Take the other side of the bet and you collect $10 if the price ends below $59.

Say it will cost you $8 to buy the bullish bet. A seller puts down $2 for the bearish bet. Now, making a comparison to a mainstream commodity option requires a little work on the back of an envelope. Roughly speaking, the simultaneous purchase of 50 bullish $59 Hedgelets and 50 bullish $60 Hedgelets would have the same payoff as buying one $59 Nymex call and selling one $60 Nymex call. (With either pair of trades you get no payout if oil ends below $59, $1,000 if oil ends above $60 and something between $0 and $1,000 if oil ends in between.) As of Feb. 14 the two Hedgelet trades would have cost you $600 at asked prices. The Nymex strategy would have cost you $510."

When 99.9 is not 100

When the Nets led by 21 in the 4th quarter the contract traded in the high 90's, apparently a done deal. And why not? The spread was only 5.5. But the fates conspired against NJ backers. At literally at the very last second Steve Francis tossed up a 3 that prevented NJ from covering the spread and must have made NJ bettors half mad. NJ was up by so much that they didn't even try to stop him, the only people who cared at that point were the gamblers. Whoops!

Look at that drop!



The horror, the horror...

Maybe they'll come up with a better name for "hedgelets"

CBOE takes stake in HedgeStreet to develop products

"The Chicago Board Options Exchange, the largest U.S. options market, said on Wednesday it has taken a stake in an electronic U.S. exchange as part of a plan for the two markets to jointly develop new products."

Excellent news, not only to legitimize the industry but to add liquidity as well.


Goodbye Larry, Mr. Luskin's Take


Ousted by the PC Police

OK I'll admit it wasn't a bold prediction...

...but being right is a fabulous thing.

Goodbye Larry Pt. 2 and CPI Numbers

The Summers Step contract expired today at 100 meaning for us it paid off. With that contract I was able to enter with an average cost of 57.6 and scaled out at 70 and up. By the time it expired I was only open for 5 lots. I had the rest of the postion closed with pending orders. Very simple.

CPI Strategy

CPI numbers are coming out tomorrow morning (for Jan) with consensus at +.4% vs last months -.1%. The decline in December CPI was nearly entirely due to change in the price of crude. The Tradesports contract is on the Raw figure as the Core CPI barely moves.

Liquitity is lacking on this one constantly but if we can get in at good odds this one will pay by fading the consensus. Last weeks PPI showed an increase and although the pass through relationship between producers and consumers fell apart in Decemeber it was more of a one-off than a new trend. What this is a bet on is oil. While the energy weight of the CPI is less then PPI the previous month's move shows our expectations are realistic. The contact goes up to .6% on the high so we could see the whole board pay off.

The trade: If you can get the -.2% at less than 90 do it. Buy up .4% at 60 or less.

Measuring What Matters

An instinct for the capillary

“But as the blogger Tim Cavanaugh notes, the smart money is taking his side: "After a weeklong bump into the double digits, the Dick Cheney June 30 retirement futures at intrade.com have plummeted; they are now below where they were before the shooting."”

While this politically focused article only mentions intrade in passing, it shows how prediction markets have come from being objects of curiosity to actual reference points in news stories. It also shows that despite the headlines people have not had a significant change in opinion because of the shooting incident. Cheney hasn’t felt any real pressure to resign and the hunting accident didn’t change that.

If you remember the 2004 debates, there was endless sniping about who “won” after each one. Polls weren’t that useful because they were so tainted with politics they didn’t track what really mattered: who would win the election. Fortunately the market did. And what it showed was a few percentage point move after the debates to none at all. In other words the debates didn’t change anyone’s mind or have any other effect on the odds. You wouldn’t know it from the hours of TV and gallons of ink wasted on the topic. As Cheney’s case shows, if you really want to know what is going on, follow the market not the headlines.

Goodbye Larry?

Thrust back into the spotlight by this recent New York Times article Larry Summers is back on the brink of keeping his job. Two days after it was published Tradesports added the contract and a vulgar banner ad to their front page.

“Summers’ future will be decided by the Harvard Corporation, the University’s highest governing body, not by public opinion—but that hasn’t kept people from being interested in speculating on what Summers’ fate will be.

Visitors to Tradesports.com yesterday were greeted with a banner ad that read, “Larry Summers in Hot Water Again!?,” next to images of the Harvard insignia and of Summers’ head hovering above a boiling cauldron.”

The Crimson


This is from the WSJ released a little after 4am today, “Calls for Mr. Summers's departure from faculty critics have escalated in recent days, while his supporters complain that he hasn't responded with his customary vigor.” The article also says that the issue is still up in the air but Mr. Summers does seem to have lost the unconditional support that he enjoyed during the women in science scandal.

The Trade: Buying in up to the 60 level and scaling out leading up to the vote. A battle for his life and he is on a “ski vacation”?!?! Either he is really confident or he has already given up.

Honey, I just booked the flight and the weather hedge

http://www.tcsdaily.com

A site I haven't seen before but looks interesting. This article focused on the practical side of weather futures rather than the usual absurdist take on gambling on the weather.


http://www.tcsdaily.com/article.aspx?id=021506E


"City governments would like it if snowfall were low because they would not have to spend the money to have the roads plowed and salted. Ski resorts, on the other hand, would prefer to have a lot of powder for their customers. Nevertheless they could each bet that they would experience bad fortune in order to minimize their losses."

A lovely transfer of risk that couldn't exist without a prediction market!

My favourite line, "…who knows, soon you may be checking the weather forecast at the Chicago Mercantile Exchange rather than on your local news."

Here is the CMEs very informative page on Weather Derivatives: http://www.cme.com/trading/prd/env/cmeweather14270.html


The ideal situation would be when weather futures would be traded by retail traders before weddings and vacations. Orbitz could even have a link to the appropriate contract next to the booking confirmation.

My kind of world!

Prediction Markets vs Bird Flu

Academic approach with its expected excuses:

"The Iowa flu market cultivates contacts in emergency rooms and pharmacies within the state. But an avian flu market, Nelson said, would require participants in Asia and traders with specialized profiles, such as microbiologists who examine data worldwide.“We’ve not yet tapped into the right circles to get access to those traders,” he said. “That has kept us from opening an avian flu market.”"

Capitalism in action:

"Meanwhile, Trade Exchange Network recently closed one avian flu prediction market and is winding down another. In the first market, traders bought and sold futures contracts on whether avian flu would be confirmed in the United States by the end of 2005. The other market has traders testing hunches regarding a confirmed U.S. outbreak by March 31. The flu market operates on Trade Exchange Network’s Tradesports Web site."



Fighting the flu -
From game theory to flu chips, researchers experiment with new technologies to help thwart upcoming health catastrophes

The Dow and the GOP

An interesting article by Donald Luskin, who reported heavily on the manipulation of the futures contracts in the 2004 election.

"On Jan. 20, stocks took their biggest one-day drop in almost three years…on Friday, there was a second one-day crash, but it's one you probably didn't hear about. That day the futures contracts on whether the Republican party will keep its majority in the House of Representatives in the elections this November crashed from a price of 69 at Thursday's close to as low as 60 on Friday — a drop of 13% in a single day."

The Elephant in the Room

Divine Futures

"As Samuel Butler admitted in his Notebooks (1912): 'What is faith but a kind of betting or speculation after all? It should be: '"I bet that my Redeemer liveth."'

Profits of Doom

Pascal used infinity to show that belief in god is rational. If you believe in god you might get into heaven even if the chance is extremely small, if you don't believe in god then you can never get into heaven. Since the utility of heaven is infinite, the expected value of believing in god is infinite bliss, therefore its rational to believe in god.

Hey I'll make a two-way market in it, you probably wouldn't like the spreads though.