Live free or die, traders.
It’s probably Bernie
Unlike Iowa, where multiple candidates all had plausible paths to victory, in New Hampshire things seem relatively straightforward. Bernie Sanders will win. Unless there’s a polling error underestimating the turnout of moderate voters, who coalesce behind Pete to put him over the top, or may Amy Klobuchar once in a blue moon. I don’t see tremendous herding in the polls (maybe some), and I don’t really respect a 5-point polling error as much as the models and markets seem to (but that may just be me). So here are my prices alongside 538’s and PI’s:
You can see above that I’ve gone ahead and resolved the Iowa market for Pete for my scorekeeping (which I can fix), because it seems likely that barring a full recount (as of this writing, unclear this is going to happen), Pete will take the edge in both SDE (what the PI market resolves on) and pledged delegates (what 538 was forecasting). So who’s doing the best so far?
538 > jipkin > PI (so far*)
(*assuming Pete holds the pledged delegate/SDE lead in Iowa.)
Yep, shorting Bernie ended up (pending) being the correct play!
Both 538 and I agreed that Bernie was overpriced, but I was a bit more bullish. So on average, 538’s Brier score is a little bit lower than mine. Because Briers are squared error, they tend to compress differences between forecasts. You can see the difference in performance a bit more clearly by looking at how much money you’d have made playing a buy-and-hold strategy based on applying the Kelly criterion using the odds provided by either me or 538. Using this strategy, you would have bet YES on Joe, Pete, and Liz and NO on Bernie (no matter which forecast you chose), and net come out ahead either $917.17 or $723.56. (And again, the Iowa market is not done yet – this could all flip if Bernie requests and wins a recount).
Other Betting Strategies…
Of course, playing a pure Kelly-based buy-and-hold strategy on 538’s forecast or my own isn’t the only way to go. For fun, I’ve added a bunch of other betting strategies to compare (all assume you have $850 to spend per contract):
Bet the favorite – Just buy whatever’s over 50c on the theory that PI’s prices are always too cautious. If Bernie is 67c, you pay 67c. If Joe is 25c, you pay 75c for some NO. Did not, uh, work out too well in Iowa.
“Safe Money” – What happens if you only bet on things the market says are probably not going to happen, i.e. priced at 90c or more? You end up losing a lot of money when Pete wins Iowa is what happens.
BLIND DEGEN – What happens if you max literally anything under 10c regardless of its true value? Congrats on the $6k my friend.
“VALUE” DEGEN – What if you’re into degenerate bets, but temper them by only placing them on sub-10c contracts which 538 says are worth at least 6c more? Easy $7.7k, shipped.
“The Market is Wrong” – Ah, you’re a contrarian I see. Well fine, go ahead and literally take the opposite side of the market in every contract. If Bernie is 67c, we pay 33c for NO. If Joe is 25c, we buy Joe at 25c. And if Pete is 9c, we buy Pete at 9c and hey would you look at that there’s $6.7k.
Inverse the Live Ones – A sophisticated contrarian! For the trader who’s too wise to bet against everything, because they don’t want to lose money betting on trash. This trader only bets against any contract that’s between 10c and 90c. And does ok here, losing a max on Joe but winning more than that on Bernie NO.
jipkin’s Actual Profit – Finally, there’s the money I actually made playing the way I play. Which, honestly, happens to be my second-best PI market of all time on account of all the craziness that’s happened (currently up $4.3k). I’m curious to see how well I do versus these other strategies throughout the entire primary season!
What I did right and wrong in IA
Even though I made quite a bit of money in the Iowa market ($3k over the week), I’m more or less feeling “meh” about it. There were numerous spots where I made subpar decisions, and I think realistically I should be up around $12k right now if I’d been sharper. Here’s a non-exhaustive list of what I think I did relatively poorly:
- I was correct about when the site would lag and trading would become unbearably slow, and playing lightly throughout the day on Monday was correct. However, this meant I was basically sitting doing nothing all night when the results never came…
- I should have bet against Joe Biden hard on the first satellite results. Even though at the time I knew they didn’t mean that much, I also knew they would move the markets, which they did.
- I didn’t have the fastest results site for the initial few results we did have, and thus missed the beginnings of the Pete boom. There was still time to hop aboard and I should have done so at least gingerly.
- Later in the night, when it was coming down to competing data from Pete and Bernie, it was clear that Pete probably had the edge in SDE and while I did bet his numbers, I should have bet harder (the site performance didn’t help).
- I should have gone into the first results update holding more than like 80 shares of Pete. Probably should have held 2k shares total at least… it was clearly mispriced at that point (70/30 for Bernie) but unfortunately my loss aversion was too strong to make the obvious bet. I reasoned that with how much volume was in the order book I’d be able to scoop shares, so there was little point in scooping. However, this did not account for site performance basically preventing that play and for the fact that the IDP site didn’t update in my region for like 10 minutes after where it updated in other regions.
- On the false IDP update where they gave delegates to Patrick and Steyer instead of Bernie and Warren, I should have noticed this long before anyone on twitter did. I made money on this flip, but it should have been insanely more (could have been nearly doubled at 6-7c instead of 2k 8c shares).
- I did catch the Bernie 30->75c flip, but should have bought for the bounce back to 60c and then back up to 75c. Was not trading in the zone here!
- Later in the week, I should have been flipping a bit more at a time and setting more aggressive price targets.
If you’d like to review my trades, you can find them here! Here’s what the realized profit over time looks like:
The Usual Disclaimer
Please do your own research before trading. I obviously have positions in the markets I discuss here and you should therefore consider everything I write to be fundamentally biased. None of what I write should be considered specific financial advice.