I’ve been on Intrade for a year now, since Selling Ron Paul short. I’ve traded Hillary and Biden and Palin. It’s been a lot of fun, and now that the election is over, it’s a good time to look back.
It’s much easier than I expected. Every single trade has been profitable. Not every single transaction, but every single group of related transactions. I’m up 60% for the year. Not much in dollar terms, but the percentage is amazing. Obviously I should have cashed out my retirement account and put everything in Intrade. Hindsight is 20-20, but it’s too late.
There are very few true arbitrage situations. They do happen, like the Republican VP selection, and they can be profitable, but mostly the commissions and margin requirements make it difficult to do arbitrage.
Most of my gains follow a pattern: people overpay for a long shot and I take the other side of the trade. For example, on the day of the election, the polls had already started to close and the first returns were coming in… and McCain was still at 6%. So I short McCain for 6% or go long Obama for 94%, depending on what’s available.
Going forward, I don’t know if I’ll stay with Intrade or not. For my strategy to work, I need someone to take the other side of the trade, someone with just the right combination of cluelessness, delusion and stupidity that leads them to bet on things that can’t possibly happen. Politics produces such people in droves, but the election is over. Intrade is very innovative and creates contracts on hurricane landfalls, the Academy Awards, and the capture of Osama bin Laden, to name a few. So Intrade will create the contracts, but I’ll have to wait and see how delusional people get.