One week til we finally get some results!

The decisions traders make in betting markets are largely based on the stories they tell themselves about what could happen.  If one outcome sounds increasingly plausible, it will increase in value, even in the absence of hard data.  And betting markets are amazing at linear extrapolation.  Something going up?  It’ll keep going up!  (See: Warren 54c in September; Bloomberg 15c now).  So with that in mind, let’s write out the best stories one can tell oneself about how each candidate could win Iowa:

Bernie Sanders

Last week, I wrote that Bernie was overpriced.  He proved me wrong by then leading in several subsequent polls (most importantly, the well-respected NYT/Siena poll that for some godforsaken reason comes out at 5am on Saturdays).  What’s his case?

Bernie wins Iowa when Liz continues to fall and caucusgoers attending precincts where she isn’t viable and can’t become viable mainly go to him.  He benefits from youth turnout exceeding older turnout, as DMR and NYT/Siena suggest.  And he benefits from Klobuchar and Pete having enough strength to exceed the viability threshold in several precincts, depriving Biden of necessary delegates.  He has the momentum and the organization to get at least 20% of the delegates on a bad caucus night, and he only needs a little bit more to take the lead outright.

Joe Biden

Joe Biden wins Iowa because polls like Suffolk are right, because older voters who support him but didn’t say they would caucus end up turning out anyway, because Liz stays strong enough to keep Bernie from running away with all her delegates, and because Klobuchar doesn’t rise high enough to truly threaten him.  His edge in a close finish comes from the overlooked satellite caucuses, where the snowbird locations will probably favor him.

Pete Buttigieg

Pete Buttigieg doesn’t win Iowa.  Okay okay.  He wins because Biden fades late, because Klobuchar rises enough to steal some Biden support and make it a true 5-way split, and because Liz is strong enough to block Bernie from getting all the delegates in many precincts.  He also wouldn’t mind getting a few of the “not-Bernie” Liz supporters in precincts where she doesn’t reach viability and where Bernie isn’t as strong (suburban Clinton precincts, perhaps).

Elizabeth Warren

Warren wins Iowa because she has a great ground game, the NYT and DMR endorsements matter (lol) and because Bernie softens in the final week of polling.  It’s a tough row to hoe, and realistically she’s just hoping for a strong top three.  Even then, it’s not going to be a straightforward path.

Amy Klobuchar

I don’t know, really?  Maybe in a crazy 5-way tie.  She did get 13% in Emerson, I guess.

One more note

I’ll be keeping track of how accurate models and markets are this primary season, and I’m going to do a silly wrinkle this time and throw in my own predictions to see how well I fare (I bet I lose).  I’ll post my final numbers and the markets’ next Monday, on caucus day, after the final batch of polling is out.  Things I’ll be tracking: Brier score (accuracy), calibration, betting strategy (bet-the-favorite, Kelly based on 538, Kelly on me, other models), and how much I actually make trading the way I trade these things to see how it all stacks up.

 

Two weeks to Iowa!  I have no clue what’s going to happen!  Woo!

A year ago, I had thought that by now polling would have sussed out a clear top-two or something.  Nope.  Yes, nationally, Joe continues to command the most support – but there’s a difference when you’re winning with 20-30% support and when you’re winning with 40+.  In Iowa, which is what matters far more, polling is both sparse, often low-quality, and not providing a clear picture.  Uncertainty reigns.

With those things in mind, let’s go through a pot-pourri of Things I’m Wondering About:

Is Bernie Really Worth Near 50c in Iowa?

I mean…. nah.  Right?  What evidence is there to support the claim that he wins 50% of the time?  A win in the DMR poll, but with only 20% support, extrapolated forward?  The case is too thin for me.  And yet!  The pricing persists.  Clearly, he can win.  Clearly, to me, he’s not worth 48c or wherever he is currently.  I price him near 30c, which is about the most I’d pay for anyone there.  We will see what polling says over the next two weeks – the last DMR poll will be the last big pre-caucus money-maker there (I expect this the Saturday before).

Klobucharge?

When I wrote the whole blog post gaming out Iowa scenarios, I rather conspicuously ignored the possibility that Klobuchar would come back and insert herself into the top echelon, or turn it into a 5-way scrum or some such bewildering result.  And she’s still yet to really catch on.  But there have been a few (lower-quality) polls here and there showing her starting to break through into double digits in early states.  I don’t know if there’s enough time left for her, and she herself will be tied to the impeachment trial, unable to capitalize on any movement (and lacks the surrogates of Warren or Bernie to campaign in her stead).  But let’s just say I’m holding off on betting against her just yet – if I miss out on a few pennies of NO profit for my caution, then so be it.

Pete Dead?

He hasn’t and will not catch on with black voters.  He’s fading nationally (about to be surpassed by Bloomberg).  He retains some equity in IA, but not enough.  To me it feels like the tide is turning against the former mayor of South Bend, Indiana.  That said, he and Joe have the run of Iowa with two weeks to go due to the impeachment trial.  Maybe he pulls something out, but I’ve started to convince myself that the undecideds simply aren’t going to break his way.  I think he drops after NH, and now that I’ve committed to that publicly, he’ll probably go on to win the nomination or something.

What fraction of state delegate equivalents will come from satellite caucuses?

I am literally writing this to force myself to do the math on this later.  I have the satellite caucuses generally favoring Joe, since so many are in snowbird states and Joe was always doing better in the virtual caucus crosstab of early polling.

Do I really have to worry about El Bloombito?

Like, really?  I’m deeply skeptical he wins anything at all.  Or ever shows up for a debate (which he really ought to do after South Carolina anyway).  But the market does not know how to price someone doing what he’s doing because literally no one has ever done what he’s doing before.  He’s bought himself into the high single-digits.  Can you buy double-digit support?  Can you buy a polling lead?  Can you buy state wins?

What’s Ahead…

December, 2019: a debate is (or maybe isn’t?) about to happen.

January, 2020: an impeachment trial will sideline the senators for at least two weeks (maybe more?).  Another debate.

February 3, 2020: Iowa.

…And What’s Important

Iowa.

The rest?  I’m skeptical the debate has a big impact, I’m skeptical the impeachment trial will matter.  I’m sure the next month and a half will see momentum shifts and polling swings, but it’s impossible to know exactly what they’ll be and what will instigate them.  Remarkably, for December before an election year, there’s really no clear front-runner for the nomination.  The market is nearly completely up in the air.

In the last post, I tried to suss out who I thought was under- or overvalued.  I said Joe was too cheap (and he went up since then), that Liz was too cheap (and she went down), that Bernie was about right (he’s gone up), and that Pete was a bit overpriced (he went up, but then down).  [And despite this decidedly poor record, I still feel much as I did then, though I respect the case for Bernie more now.  The great thing about PredictIt, of course, is that you can be wrong but as long as you recognize things quickly enough you can still come out okay, and I’ve tacked on another $300 or so since the last post, taking me to $6.2k in that market.]

So here let’s skip trying to figure out who’s going to win, and instead try to flesh out a decision-tree for possible results coming out of the Iowa caucuses.

How Iowa Matters

Iowa is about momentum, Iowa is about surpassing expectations and Iowa is about failing to meet expectations.  Iowa is about the media narrative.  The delegates won from Iowa are unlikely to matter in the end and are not a substantial number in any event.  The whole game here is to do better than expected and, hopefully, to be “in the conversation” and “have a ticket” and whatever other shit metaphors people use to verbally segregate the perceived winners from losers.  Now, it’s of course not entirely clear that media bumps will produce voter bumps – Obama got a big bump out of Iowa heading into NH but still ended up losing the Granite state.  But, and I can say this quite confidently, the markets are going to track media sentiment and this is where the money will be, at least initially.

One Iowa Wrinkle This Year

The Iowa caucuses are weird, and for the serious or semi-serious bettor out there, I do suggest having a read through of the rules governing them.  Briefly: there are several rounds of declaring support for various candidates.  Of these, the first and the last are the most important.  The first is where everyone huddles up in a group of other people who want to caucus for that candidate.  The last is where everyone ends up at the end of the night once initial groups with fewer than 15% of caucusgoers (note this depends on the number of delegates selected by a precinct to the county convention… it’s a bit complicated) are redistributed to other candidates.

In the past, we only knew the final segregation of caucus-goers, and the media went, then, with that as the story.  I suspect, but do not fully know, that this will be the case this time as well.  However, it’s worth noting this year that Iowa will be reporting the results of the very first division into caucus groups.  This is akin to basically the “first choice” vote that you would see in a primary state (except for the part that the voters are only those who are motivated to caucus in the first place).  It’s quite conceivable, for instance, that Yang gets 6% of the vote in the first choice but 0% of the delegates in the final alignment.  Bernie might be at 20% in the first round but end up with 30% of the delegates.  So what numbers the media latches onto will matter.

But let’s assume the media does what they’ve done in the past and focuses primarily on the final expression of preference at the caucuses and run through some scenarios.

A Clear Winner, A Distant Pack

Candidate A – 45%

Candidate B, C, D – 14-18%

Betting action: 

(Note that, of course, the prices you get for various things will depend on the extent to which any of these scenarios is expected or comes as a surprise.  It’s too much to further branch the decision tree in that regard, but it’s something to bear in mind as we draw nearer caucus day.)

If Candidate A is Joe – max Joe practically everywhere, max NO on everyone else everywhere.  It’s not completely over, Bernie could still beat him in NH and maybe NV in this scenario, but it’s basically over.  Neither Pete nor Liz will be viable on Super Tuesday, although they may hang on til then anyway to save face.  VT may be a fun state to watch, as some might panic-dump their Bernies there.  Joe might hit 20-30c.

If Candidate A is Bernie – max Bernie everywhere, but aim to flip him in the Southern states.  If you can get Joe under 50c NO in the southern states, take it.   The extent of the swing in Southern states will depend on Joe’s rank – if he’s fourth he’s going to see prices crash into the 20s at least temporarily.  Liz is dead in this scenario, and should be max bet against everywhere, including MA where if you’re fast enough (you probably won’t be) or get in ahead of time you’ll get the best price.

If Candidate A is Liz – max Liz practically everywhere.  Can this happen anymore?  I feel like she has another surge in her (I still have a lot of faith in her campaign) but perhaps she’s simply already on the way out.  See above for what to do in Southern States, and absolutely destroy Pete shares across the board, including Indiana.  He’s done here.

If Candidate A is Pete – whoa.  Obviously you’re maxing Pete everywhere and saying goodbye to Elizabeth Warren.  Joe and Bernie will both hang on here and we may well have a three-way contest heading into Super Tuesday.

A Clear Winner, A Striking-Distance Second, Distant Third and Fourth

Candidate A – 40%

Candidate B – 30%

Candidates C,D – 9-15%

Betting action:

If Candidate A is Joe – max Joe in all Southern States.  Flip him in NH and NV (the extent to which depends on who Candidate B is).  Sell him at 50-60c in California, and then use your best judgment about whether to short there.  If candidate B is Bernie, max NO on Liz and Pete everywhere.  If B is Liz, max NO on Pete and Bernie practically everywhere.  If B is Pete, Liz is probably dead, but I’m not so certain Bernie couldn’t come back.  Honestly, Joe + Pete getting 70% of the delegates in Iowa seems rather implausible.

If Candidate A is Bernie – max Bernie in NH, obviously, and take him out for a spin in NV and SC (but if B is Joe, don’t hold those SCs).  B here is either Pete or Joe – if it’s Pete honestly I’d probably just max Bernie everywhere and call it.  If it’s Joe, then Pete is done and Liz has the barest of chances remaining.  Regardless, you’re max betting against C and D here almost no matter what.

If Candidate A is Liz – this is probably a Bernie collapse scenario, so you’ll want to own Liz in NH.  Pete is completely gone, even if he’s candidate B (I don’t think that’s possible, really).  Joe is most likely the serious competitor remaining and I think he’ll put up a fight that lasts beyond Super Tuesday.

If Candidate A is Pete – presumably candidate B is Bernie.  Joe in a distant third or fourth would retain some Southern equity but I’d be betting against if I had prices under 50c in front of me.  Liz here is completely done, presuming there’s no universe Pete + Liz get 70% of the Iowa delegates.

A Top Two and a Bottom Two

Candidates A, B – 35%

Candidates C, D – 12%

Betting action:

If A/B is Joe/Bernie and C/D is Liz/Pete – Pete is dead, Liz is all but dead, and Joe is the favorite to win the nomination (probably like 70:30 Joe but the market will price it at like 50:30 at best).

If A/B is Joe/Liz and C/D is Pete/Bernie – another Bernie collapse scenario, so see above for what to do there.  It’s a closer race between Joe and Liz than between Joe and Bernie (I think?) but Joe is still the clear favorite here.  California is the action state here, where I think I’d want to own Joe more than Liz, but could see it going either way.

If A/B is Bernie/Pete and C/D is Joe/Liz – wew.  Liz is very close to done for and Joe is in trouble but not out of it – turbulent waters for him in Southern state markets.  Bernie would see 40c in the overall market in this world.

If A/B is Pete/Liz and wait is this actually possible?  I’m not sure I really see this.

A Three-Way Bunch and a Straggler

Candidates A, B, C – 28-31%

Candidate D – 10%

Betting action:

Bet against Candidate D, whoever it is.  Only Joe could conceivably come back from that and by “conceivably” I mean “really unlikely to happen”.  I’m probably betting against Pete regardless here as well.  Liz is fine being in a tied top-three, while Bernie and Joe obviously don’t mind it either.  Joe benefits the most from being A, B, or C here relative to (current) expectations.

A Clusterfk

Candidates A, B, C, D – bunched up from 15-25%

Betting action:

This is the most difficult.  If it’s literally a four-way tie at 22% there’s a very different story coming out than if its 25-21-17-15 despite these not really being all that dissimilar.  Pete is likely a goner if he’s not first (and I wouldn’t take him past 25c overall even if he is).  Otherwise it depends on the exact percentages and narrative that emerges and that will be quite murky.  My plan here is to seat-of-the-pants it and see what the media converges onto as the story.

The TL;DR

Pete needs to win or finish a close second.  If Pete or Liz is in a distant fourth, it’s over for them.  Joe can survive a third or fourth place finish, but his value will take on water.  A clear Bernie win will be seen as the first of what could be three dominoes in a row to fall towards his eventual victory, but it depends on the margin and which moderate does best.  Liz wants top two to have a chance, though she does retain some equity if they all remain bunched up but she’s technically in third.  And if Joe wins Iowa, he’s probably on his way to winning the nomination.

 

Oh, hey there.  Been a spell.

Last we talked, it was just before the June debates.  Before Kamala’s brief rise and fall, before Warren hit 54c only to fall all the way back to the low 20s, before Mayor Pete rebounded, before Hillary Clinton somehow managed to hit 14c, before El Bloombito managed to do the same thing.

When I envisioned how the summer and fall would play out, I figured by November things would be a bit more sorted out than June.  Nope!  So here we are with just over two months til Iowa and not much more of a clue than before any of the debates happened.

Who is going to win?  No clue!  But let’s take a trip through the market and at least organize some thoughts:

Joe Biden – 23c

Hey, at least the (national) polling leader is leading the market for once.  And this might blow your mind, but Joe can actually win.  If his polling weren’t so garbage in IA/NH, I’d say he’s the prohibitive favorite.  But his polling there is poor.  And if he comes in fourth or something in IA… I don’t know.  If he wins after that, it won’t be a pretty win.  Joe top two in Iowa and he’s the favorite.  Probably?  Maybe?

He’s underpriced, but that’s never not been true.

Elizabeth Warren – 22c

Remember when the giddy extremely online lefties on PredictIt took her to 54c in September when she had only just managed to get to a tie in national polling with Joe?  Oops!  (Yes, you should have sold then, if you were a YES holder).

Liz Warren is arguably running the best campaign (in terms of theme, organization, etc. – Bernie and Pete are both up there as well).  She does need an early win – if she’s third in IA to Pete and Bernie (or, worse, Pete and Joe) it’s not going to go well from then on.  If she’s one of four candidates with substantial delegates leaving super Tuesday, she wants to be in the top two.  If not, probably RIP.

She’s underpriced.

Mayor Pete – 20c

There’s at least half a path for him to win.  Yes, it seems black voters won’t vote for him.  But what if I told you that in a four-way delegate split, that might not necessarily matter at a contested convention?  (That’s where Pete is winning if he’s winning, by the way).

One fun fact about Pete is that he takes more from Liz than he does from Joe, since they share appeal among white college-educateds (who like that they’re both smart) despite them staking out different ideological positions.  Adam Jentleson and the Warren camp have been desperately shitting on him for about three months now without making a substantial dent.

He’s overpriced, probably.  Not by a terrible amount.

Bernie Sanders – 15c

Yeah I mean sure, ok.  He’s not running a bad campaign.  I don’t really think he wins because I think he’s going to come out of the first four states third or fourth in delegates, not improve much on Super Tuesday, and be pressured by the Warren camp to drop and endorse her shortly thereafter.  He won’t do that, of course, and will trudge on until April clinging to the dream of a convention win (ain’t happening).  Prove me wrong, Bernie!

He’s fairly priced.

Mike Bloomberg – 13c

lol no.  He just “officially” announced today, I suppose, and his price is overinflated as a result.  He’s worth 2c at most, and that’s being generous about the possibility that maybe spending $30M a week can buy you some support.  Maybe the plan is just to bribe all the delegates at the convention?  $10M a pop and he’d be able to spend another $1B on the general election and still have $50B left over to live off post-presidency.

He’s overpriced.

Andrew Yang – 7c

Nope!  Sorry, folks.  He’s run a pretty great campaign but yeah it ain’t going to happen.  He drops after Super Tuesday.

He’s overpriced.

Hillary Clinton – 7c

She hit 14c!  If you owned her YES, that’s when you should have sold!

To be fair to the pumpers, she did at least entertain the idea.  It was closer than it should have been.  But we’re now officially in “maybe she’ll emerge as a savior at the convention” territory, which, if you think about for a few seconds, you’ll realize is hilariously dumb.  PROVE ME WRONG, HILLDAWG.  DO IT.  I DARE YOU.

She’s overpriced.

Kamala Harris – 4c

She missed her moment, it seems.  I honestly thought she would win after that first debate.  However, it turns out that I’m very dumb.  She was running in the liberal lane ideologically when she should have just occupied the space Pete has been staking out the whole time.  Oh well!  Don’t let your family run your campaign!

She’s just a touch overpriced.

Amy Klobuchar – 3c

She’s my pick for a December bubble.  She’s already creeping up in IA and has a real shot at hitting double digits there, particularly if Pete falters a bit.  Does she win the race?  Well, if (and only if) she wins IA she will have a chance, since MN ought to award her enough delegates to take to the convention, where I actually think she might be reasonably formidable in the second and third ballots.

She’s fairly priced, but please buy my shares for sale at 4c.

Tulsi Gabbard – 3c

Tulsi Gabbard will not be the next Democratic nominee for President of the United States.  There are two kinds of people betting on Tulsi: right-leaning people who think she has a chance (they are dumb) and sharps taking advantage of these people to flip shares.

She’s overpriced (worth 0c).

Deval Patrick – 1c

Already forgot this guy was running and I don’t know if it’s even been a week.  Maybe it’s been two weeks?  Who cares.

He’s fairly priced.

Cory Booker – 1c

Cory, like Kamala, should have run more moderately to start off with.  He’s probably worth more than a penny, and yet I’m literally trying to sell him at a penny right now because like what is the path here after he wins 0 delegates in IA, 0 in NH, 0 in NV, and 0 in SC?  I guess he’s running to maintain some VP equity (though the one candidate who I think would have picked him, Kirsten Gillibrand, is long gone at this point).

He’s a bit underpriced I suppose.

Tom Steyer – 1c

Come on now.

Julian Castro – 1c

Literally running to be Elizabeth Warren’s VP and nothing else.

Oh god John Delaney et al. are still running

Folks!  Your lives!  What are you doing with them??  I take that back for Marianne Williamson, actually.  At least she can sell some books.  Bennet, Bullock, Delaney, and Sestak are just battling their own vanities.

Pour one out

For Kirsten, Beto, all the other white dudes, and especially Mayor Wayne.

To sum up

Buy Joe and Liz, I guess?  I don’t know.  (Can’t you tell?)  Flipping shares as the wind changes directions is at least profitable (and so long as you can tell which way it’s about to blow).  I’m up to just shy of $6k profit in the market (up from $1.9k back before the first debate) so there’s that brag out of the way.  Should be more!  (It should always be more).

I’m also just shy of 1M shares sold in that market (neat), so not exactly the most efficient play style, but reasonably profitable.  If you’d like to copy or mock my plays, here’s my full trade history for this market (yes, you can use this to figure out my current position if you’d like).

 

Disclaimer: I probably have positions or intend to take positions in just about all the markets I discuss herein.  You should always do your own research prior to making any investment decision. You should consider my advice and knowledge I share to be fundamentally biased in its presentation and selection by my own financial incentives.  While I do not knowingly lie I certainly do knowingly omit information that I think gives me an edge.

Long time, no see, dear Reader.  It’s June 24th, the first Democratic debates are two/three days away, and Andrew Yang is back in the mid-teens.  Welcome to PredictIt?

Warren Comes Back

In probably the most logical shift in the market, Warren, off the back of “she’s got a plan for that” catching on with the media and voters, has risen in both the polls and (a bit more aggressively) in the market.  From 6c to 22c at peak!  Of course, she’s still in third overall.

She gets the first debate (and perhaps the most eyeballs?) all to herself in the sense that she’s the only one people really care about that night.  Perhaps she makes a good impression and continues her rise?  Or maybe her coverage gets drowned out by what happens on Thursday.  (Or maybe, and this seems closest to the truth to me, within a week or two we will barely be talking about things that have happened in the debate and instead will be talking about fundraising and the next debate).

YangGang

Andrew Yang tweeted out his PredictIt price (insanely, at one point on Saturday, he was priced higher than Biden to win the general election).  The gang followed.  His price rose.  This is the big moment, you see?  The debate!  Finally, everyone will see Yang’s ideas and charisma and he’ll begin a non-stop rise in the polls!  Choo-choo!

Ok.

(Or he’s going to get lost in the noise, fade in July/August, and fail to make the September debates.  Fight me, nerds).

Mayor Pete’s Rough Week

Setting aside the actually important issues, the police-community tension and racial fault lines in South Bend have exposed Pete’s political weakness with black voters.  Combined with losing some of his highly educated / liberal white support to Warren, his price is matching it’s opening lows of 11c, far from the heady days of 21c at the peak of his boomlet.

That said, he does generally do well in televised appearances and the debates are an opportunity in that sense.  He’ll be young and different and a lot of folks won’t have seen him before, so who knows.  Of course, he’ll also be on the same stage as a lot of other heavyweights competing for attention and he’s almost certain to get a question or two on what’s going on in South Bend.

The Market Still Hates Joe Biden

…and is convinced he’s going to bomb in the debates?  He’s dealing with fallout from some of his current/past positive remarks about segregationists and so on that he’s worked with.  Some people think that’s going to hurt him with black voters, and it probably has/will but chiefly among the younger set of black voters that weren’t really into him in the first place.

In general, he’s not a terrible debater and he is guaranteed to be someone folks are talking about afterward.  In fact, the biggest risk for him is the world where somehow he fades into the background on debate night.  Conversely, a world where his support rises after the debates would really blow a lot of minds on PredictIt, and he might go back over 30c.

Bernie Sags

The man needs some juice for his campaign!  He’s bleeding some support to Warren and he tops the ranks when you ask Democratic voters which candidate they’d be least likely to vote for (he also retains a sizeable number of diehards).  Accordingly, he’s slowly slowly slowly ebbed in the market, now down to 14c.

The Stealthy Return of Kamala?

One interesting movement, as of yesterday and today, is that Kamala is off her recent 10c lows and back up to 13c, chewing through quite a lot of volume to get there.  Why?  Well she’s one of the candidates probably due a surge of support at some time.  She has a good debate slot (offers a great contrast to the three other heavyweight white dudes she’ll be standing next to on center-stage).  And if anyone is going to capitalize on an erosion in Joe Biden’s support among moderate and older black voters, it’s Kamala.  I’m bitter because I was nearly first in line at 9c and was hoping to get some fills pre-debate.  Alas.

Tulsi Gabbard and Hillary Clinton are both worth 3c, apparently

Ok.

Will any of the 1%ers rise?

Inslee would be my best guess.  Maybe Bennet.  Hickenlooper might take some shots at Bernie.  But honestly, none of them are that impressive?  For meme in-debate betting, Williamson would seem to be the best shot for a bump in price but for some reason the market hasn’t taken to her like it has taken to Yang, Tulsi, Hillary, etc.

The Tournament

While it’s all I’ve talked about on this blog this year, there are other markets on PredictIt besides DNOM!  This week, they’re running a tournament to find out who can best predict the debates, centered on predicting movement from pre- to post-debate polling by Scott Rasmussen (his stuff is done through HarrisX now; his namesake firm is run by another guy now).  Read this for details on the tournament and read this for details on how Scotty Ras is doing the polling.  The winner is determined by whoever has the most overall profit and I’m already up like $5 so watch out.

Betting Strategy Update

Many people neg-risk these big high-volume markets, a fine strategy for those that don’t have a lot of time to devote to monitoring its every movement.  I’ve argued that flipping shares back and forth is more profitable in the long run, provided you know what you’re doing.  I like to think that I know what I’m doing (at least a little bit?) and have now surpassed in net profit from 2020.DNOM what would be the best possible neg-risk pay-out in the market.

Best possible neg-risk pay-out right now:

The Rock (or, like, Bullock) wins and you get $1831.31, an additional $433.83 over the $1397.48 you’d have already been paid for the worst-case scenario of Joe Biden winning.

(And none of you have perfect neg-risk, let’s be honest).

My net profit in the market so far: $1920.75

Eat it, neg-riskers!  Of course, I have like $200 in dead shares right now (maybe) and I’m sure I’ll screw up at some point on some other trade but yeah.  If you can figure out how to buy and sell 325,000 shares you too can make money flipping.

(How to view your own market history: click account, click history, click the markets tab, select the market you’re interested in, export via date range you want.  In excel, =sum(G:G) + sum(H:H) will give you your net profit less fees.)

Here’s what that looks like in graphical form:

A bit better than the $500 or so I was at when I last posted a version of this in late March.  Still a long ways to go – my goal is at least $10k total profit from this market by the time things are all said in done 13 months from now.  We shall see!

Happy trading my friends, and may all your debate predictions come true.

 

Disclaimer: I probably have positions or intend to take positions in just about all the markets I discuss herein.  You should always do your own research prior to making any investment decision. You should consider my advice and knowledge I share to be fundamentally biased in its presentation and selection by my own financial incentives.  While I do not knowingly lie I certainly do knowingly omit information that I think gives me an edge.

 

Let’s start with everything from the beginning of the year until, say, March 29th at 4pm:

Joe Biden is leading in the polls.  (Which polls?  All of them, Mr. Cohen).  He has the highest head-to-head numbers versus Trump in the general (better than Bernie’s!).  Several sources have indicated he’s almost certain to run, announcing in April some time.

The PredictIt markets are keeping him near the lead or in it, and yet it’s sort of reluctant.  No one there likes Joe Biden.  They’re all BernieBros or YangGangers or Buttigeeks or what have you.  (Some of us dabble in Kamala shares but no one talks about it).  He’s the “establishment” candidate, which means he’s the one standing in the way of their preferred candidate from winning.

But there are also substantive reasons to mistrust his poll position.  Can he really sustain a donor base that can compete?  Will his record withstand the scrutiny of the campaign?  And what about all those “off” montages of him being a bit too familiar with women?

And that brings us to 4pm on March 29th, when The Cut published Lucy Flores’ account of a non-consensual Biden sniff-and-smooch encounter she had in 2014:

Soft Support Means Big Moves

Yikes!  He fell 15c in his odds of running on this one story alone and lost a quarter of his equity in the overall horserace.  What are the lessons here?

• When the traders in the market are already cautious about a candidacy, a story that plays directly to a major negative narrative surrounding that candidacy is going to do some damage.

 

• This effect is amplified when the candidate in question has a history of waffling on Presidential runs.

 

• The timing (shortly before the month of announcement) adds to fears.  “Oh god, what if he realizes this just isn’t worth it to him.”  This creates good conditions for panics (the “will he run” market saw low 50s, at one point).

 

• There are plenty of other women who have been photographed in similar situations.  Everyone knows reporters have to be working on that story.  These kinds of stories are known for having multiple shoes dropping, and that history also plays into traders’ decision-making.

What happens next?

The month of April will be quite consequential in the DNOM market.  Last week, I wrote about trading strategies for that market.  I would urge you to be particularly cautious over the next few weeks!

If Biden does drop out, reasonably unexpectedly, the whole table gets flipped.  Bernie probably goes to 28c, and might see 30c+ amid the chaos.  Kamala, Buttigieg, Beto, Warren… honestly everyone will get a bite out of the slice of pie that Biden has on his plate right now.  You do not want to be caught holding expensive NO shares in this scenario.

Of course, that scenario is (according to the wisdom of the crowds) not as likely as the one where Biden does announce as expected.  Here, he’ll regain some of his equity (and maybe even re-take the lead?) although I suspect the Flores story will create a lingering fear that will weigh his price down for a few weeks at least.

And what about the Biden contract itself?  Should you play it?  Well, I dunno.  Do you feel lucky, kid?  I’m treating it like a hot potato for the time being, but that doesn’t mean I won’t trade a few shares back and forth either.  Good luck out there, traders!

If you’ve found your way here, chances are you already are a PredictIt trader or are curious about betting markets and might become one in the future (if so, please use this referral link which may or may not still be working; if it is working it will match up to $20 of your initial deposit and benefit this blog).  And further, you’re probably curious about the smartest way to trade on who will win the Democratic nomination.  So here are a few thoughts to guide your way:

The Market

Click >>here<< for the most popular and heavily-traded market on PredictIt for the next year.

You’ll see a list of contracts for who will eventually win the Democratic nomination; not all candidates are listed but at some point PredictIt will get around to adding them all (hopefully).  For each candidate you can either buy YES shares (that they’ll win) or NO shares (that they’ll lose).  You can of course choose not to buy shares either way for certain candidates.  You can buy YES shares for multiple candidates if you’d like.  You can buy NO shares on multiple candidates (more on this below).  You can sell these shares at any point for profit or for loss.  And come July 2020, any position you still hold will either resolve $1 or $0 per share depending on who wins.

Okay, so how can you make money doing this?  A few simple strategies:

1) Just pick who you like and hope they win

This is probably the most common strategy.  You like Bernie Sanders.  You see that it costs $0.21 to buy a share of Bernie.  You throw down $21 for 100 shares and go on about your life.  If he wins, you get $79 in gross profit less $7.90 in fees (10% of your profit) for a net profit of $71.10.  If he doesn’t win, you lose your $21, or maybe you dump them for pennies at some point next year.

You can make this more complicated if you like of course.  Maybe you think it’s for sure either Bernie or Kamala, so you add $15 worth of Kamala (another 100 shares at $0.15 each).  Now you profit if either wins but not as much as if you had just correctly picked the only one to win.  Or maybe you decide it’s definitely not going to be Andrew Yang, so you bet $88 to win what you feel would be a free $12 on him falling short.  Each contract is its own decision to make.

2) Neg-risk

One of the most popular strategies in these big high volume markets is achieving something called “negative risk”.  You can do this in any “linked” market; if a market offers more than one contract where only one can win then that market can be neg-risked.

What is negative risk?  Neg-risk is achieved when you buy NO shares in multiple contracts.  Because at least one set of your NO shares has to resolve NO, PredictIt will credit you with some money back when you purchase the second or more contract’s worth of NOs (conversely; they will debit you for increasing your risk if you sell them back).  For example, let’s say you bought NO at Joe Biden’s peak of 27c, meaning that you spent 73c per share, and let’s say you’re a relative high roller and spent the most money per contract that you can, $850.  Now say you turned around and also bet the max limit (“maxed”) Bernie Sanders when he hit the same 27c peak.  Your risk table would look something like this:

You have 1164 shares of both, and the value of your shares is just shy of the $850 betting limit.  Yet the most you can lose if either of them takes the nomination?  $566.87.  That’s because while you lose $849.72 if one of them wins, you also win $282.85 from your NO shares on the other contract winning, meaning your total loss is reduced.  Now let’s continue and say that you’d played the market perfectly after starting just after the midterms last year and maxed every contract at its YES peak (getting the cheapest NO to date for all of them).  Your risk table would look like this:

Whoa.  Yeah.  The worst you could do?  Win $1039.86.  In fact, PredictIt will have already credited you that amount, so for walking into the game with $850 just after the midterms and patiently (and perfectly) entering each contract, you’d be able to withdraw $1k just like that, with nothing decided and your shares still live.  And if John Hickenlooper wins (not listed yet)?  Well then all your NO shares pay – meaning you get an additional $1100 or so.

If you’d like to play around with this to try different combinations of prices and so on, please feel free to copy from this spreadsheet (hopefully the formulas will copy for you).

3) Flipping and playing the swings

The 2020.DNOM market (here I’m using the ticker name for abbreviation) is the highest volume market on PI.  It routinely trades over 3M shares a week, and that volume is likely to pick up.  Further, you might notice just by following the market a bit that prices move up and down as the hive mind decides who’s winning and who’s losing.  Polls, endorsements, announcements, armies of Yang supporters, you name it.  Anything can move the market.

One way to capitalize on this volume is to simply buy shares at one price and sell them for a teensy bit higher.  Then repeat.  And repeat.  And repeat.  Oh and don’t get caught on the wrong side of a price drift!  With enough volume on your end (and with enough time and patience on your hands) you can slowly accumulate a reasonable profit this way.

This is how I play, and despite doing a rather poor job of it I’ve managed to get up to about $440 in profit in this market alone, most of which has come from that same post-midterm period where the absolute perfect neg-risker could have walked away with $1k by now (and we’ll touch on this below, but getting perfect neg-risk ain’t easy).  Here’s what that kind of grinding looks like (again noting that I consider this to be relatively poorly played thus far):

4) Miscellaneous play-style thoughts

• Not every style works for every trader.  Are you hopelessly addicted to PI and spend way too much time on the website?  You might as well flip shares, or get neg-risk and flip shares within neg-risk.  If you’re low time-commitment, then best to just pick a position and stick to it or enter neg-risk and stand pat.

 

• What’s your bankroll?  Neg-risk can be a perfect way to build a bankroll up.  If you start with $100 you can probably walk away with $110 by the end of a week if you’re patient.  Then you can take that money and reinvest in more shares until you get all the way up to $850 or more (which you can then go spend elsewhere on the site or withdraw).

 

• If you do neg-risk, don’t be too much of a perfectionist.  There’s probably always going to be a better neg-risk that you can get later, so don’t be afraid to sell off a position that you think might spike so you can rebuy cheaper (and with more shares).  It’s really really hard to get perfect neg-risk.

 

• You can stay in neg-risk and still own YES shares, depending on how many and at what price, etc.  Getting neg-risk and then buying a “kicker” is a pretty popular way to play, but your YES bracket(s) will probably end up being very cheap contracts that are unlikely to win.  Then again, if the market really swings enough, you never know what kind of an amazing position you could get.

 

• You can flip more shares on the YES side, but of course it takes longer and makes you a little less nimble if you need to switch.

 

• The most money is to be made by making solid predictions about who will move and by how much, maxing, and collecting your profit.  For instance, you could have maxed Bernie at 12c and sold him for 25c already if you correctly predicted that he’d run and show strength early on.  I’m shit at making predictions, but you might be good at them!

 

• The market won’t be static forever.  (Indeed it’s moved quite a bit, even just this year). If you’re a penny-flipper, like I am, you would be wise to monitor your positions closely during the first debates and as the first post-debate polls come out.  Momentum can shift in the summer, and the market I expect will react – it will take more skill to maximize profit on these swings.  And who knows what kind of boomlets the fall will bring.

 

• The market will be insane by the Iowa caucuses, and on caucus night.  It’s likely PredictIt’s servers will crash then, so don’t get caught holding shares in someone who will be worthless at the end of the night (Klobuchar, perhaps).

 

• The market will be virtually over by the end of Super Tuesday (probably, anyway).  But in the event that things continue to the convention (and perhaps past the first ballot) this market will become insanely fun.

 

• These strategies don’t just apply to DNOM.2020 (see also USPREZ, the Iowa market), but that doesn’t mean they’re all applicable everywhere.

 

Disclaimer: I probably have positions or intend to take positions in just about all the markets I discuss herein.  You should always do your own research prior to making any investment decision. You should consider my advice and knowledge I share to be fundamentally biased in its presentation and selection by my own financial incentives.  While I do not knowingly lie I certainly do knowingly omit information that I think gives me an edge.

See anything funny about this chart of candidate prices in DNOM at PredictIt?

Yeah, uh, why is Andrew Yang at 13c?  And if I told you he’d later hit 17c, how the hell did that happen?  What are his actual chances anyway?

Prediction Markets: How do they work?

The Yang pricing is so ridiculous that pretty much everyone is dunking on the market for it.  Nate Silver asks ironically “Not just Yang but now also Buttigieg ahead of Warren, Booker and Klobuchar on PredictIt, which definitely isn’t biased toward candidates that young white dudes who spend a lot of time on the Internet like, why would you ask a thing like that when markets can’t be wrong?”

Are the markets wrong?  If the price is so obviously bad, why isn’t it being corrected by smarter money?  What’s going on here?  The take-home is that basically Nate Silver is right.  But let’s explore a bit why that is.

Prediction markets are supposed to distill the wisdom of the crowd in numerical form.  Hundreds and thousands of traders each wager whether or not an event will happen.  Some will think it will, some will think it won’t.  One person says “I think this has a 25% chance of happening” but because they’re smart, they throw out an offer for 15c shares.  Another person says “No way this happens, but let’s see if I can get some 65c NO shares” and they put up an offer there.  Some more traders come in and, leapfrog those offers by just a bit, hoping someone will bite.  The process repeats until the market reaches equilibrium.  When events transpire that influence the odds of the contract resolving one way or the other, people will trade their shares and new people will enter the market.  Thus the movements in price represent how much the market thinks a given event influenced the odds.

Okay so that’s the theory.  The reality?  People bet on who they want to win, mostly, and then form an emotional attachment to those shares and hold them til the bitter end or glory.  And the online betting markets?  Yep, Nate is right.  Mostly a bunch of extremely online dudes, which means the “crowd” doesn’t represent the full range of relevant human input that it could.  And Andrew Yang…

The Power of Memes

Yang is the meme-candidate (see this subreddit).  And we’re just coming off a meme-candidate winning in 2016.  So why not again?  Same huge field of opponents, right?  He has a dedicated semi-ironic fanbase and that means new money and people willing to throw away a little bit in order to secure the bag.  Additionally, he was added to the market just as he started getting mainstream media traction.  A huge influx of new money all coming on to one candidate?  You’re going to get a bubble.

Is the Betting Limit Distorting his Price?

People like to argue that if there weren’t a max bet of $850, more smart money would be able to come in and quash these bubbles before they get started.  And there is a case to be made for that.  But let’s also not underestimate just how much demand there was for Yang.  And how much money is betting against him too!  The data:

Yang has attracted HUGE volume.  Overall, as of this writing, 820k shares of Yang have been traded at a price average of around 11c.  In only one week, he went from 0 active shares (that is, shares that are still held by traders) to nearly 480k, the most in the market.    By my estimate, around $50,000 is currently bet on him, and over $400,000 against him.  How much better could the market have performed without a limit?  Sure, there’d be more smart money to bet against (substantially more than $400k?), but don’t forget that there’d also be more stupid money to bet on him at those prices too.  Though I wasn’t a trader back then, people that were can attest that there were plenty of idiotic whales on the Intrade markets.

Eventually, the Bubble Bursts

Yang’s price peaked two days ago at 17c and the air has been slowly deflating from the balloon since (he now trades at 11c).  I don’t think he’ll go much under probably 7 or 8c as hopeful/fearful bettors will wait to see how he does in the first few debates, but I don’t think he’s revisiting 15-17c anytime soon without some sort of polling bump or something.

Then again, I didn’t think he’d make it over 10c and I’m holding 94c NO shares so what do I know?

So What Are Betting Markets Good For?

If transient influxes of biased new money can distort their pricing, if the population of bettors is skewed such that it favors certain candidates over others, what can we even learn from betting markets anyway?  This is the thrust of Silver et al.’s criticism of the markets.

And basically, the critics are right, but only narrowly.  Market pricing doesn’t tell you the actual odds of something happening.  It tells you what the crowd of extremely online dudes thinks the odds are, and that’s about it.  But!  The movements in price, the way bubbles come and go, when volume goes up or down – that stuff is informative.  It tells you what sorts of things the crowd thinks matter.  It tells you how much the crowd thinks those things matter.  And that information, if you study it, can help you make money off the crowd when those things happen again…

(New to PredictIt? Use this referral link to get up to $20 of your initial deposit matched and support this blog).

As we begin the sixth week of 2019, where do things stand in the race for the Democratic nominee to be President?  Last we checked, in mid-December, Beto rode high atop the field, but a lot has happened since then!

When considering market pricing of a wide-open event happening in the distant future, it’s probably wise not to get too hung up on the exact numbers it spits out.  (That is, who cares right now whether Kamala really has a 25% chance or a 20% chance).  Betting markets are distillations of conventional wisdom in numerical form – and that means the changes in price can actually tell us something about how that conventional wisdom is shifting as well.

In this post, I discuss the fluctuations of this market and what might happen next.  In general, the story it tells is that Kamala has pulled just a bit away from the rest, with the Three White Dudes in the chase pack and the rest of the field bunched up together within plausible striking distance while Gillibrand has started to fall off the pace a bit.  So let’s review what’s happened to each of the top nine candidates since the beginning of 2019:

Kamala Harris – 21c

I wrote initially of Kamala:

When I think of Kamala, I’m struck by how little organic interest there seems to be in her.  Maybe I don’t follow the right people on twitter – but where is the buzz?  Her tweets kind of suck too?  She’s got a sharp, aggressive wit but seems to keep it restrained.  Her public speaking is okay.  But really she needs a Moment or two.  People need to be inspired by her (the person) such that they talk about her, want to work for her, want to vote for her.

And this I think is the take that’s aged the least well.  Her strong rally numbers (it helps to announce in a major city of course) and relatively large one-day fundraising totals post-announcement vaulted her into front place in the market, a position she hasn’t relinquished since.

To be sure, her value also been aided by perceptions in mid- to late-January that maybe Beto and Biden wouldn’t run after all, and her price more recently has declined as the the white dudes gain back their value ahead of what look like more and more likely runs.

Joe Biden – 17c

Is he gonna do it or what?  If he does announce to run, and soon, I expect his price will clear 22c at least on the initial announcement.  He is, after all, the leader in the polls.  But if he doesn’t?  Well then it will be very very interesting to see which candidates get his value and which don’t.  For now, his price has been steadily increasing in anticipation of an announcement.

Beto O’Rourke – 16c

Gone are the heady days of 24c Beto, but so too are gone the sad and bleak days of 11c Beto.  If you look closely at his graph, you can see his price begin its descent a few days after his cloyingly Medium-documented road trip began (Kamala’s strength in her announcement hurt him as well), and things especially fell off when he said he was considering going into teaching instead of running.  And then you can also see the big spike up after his Oprah interview where it seemed more and more likely that he does jump in after all.  What I wrote last time still holds, although I’d maybe give a bit more credence to the idea that his family might keep him back:

Beto is clickable, likable, electable, _____able.  He knows it (he loves it).  The media want him to run (my god, the clicks).  He wants to stand in front of the crowds again (but maybe he doesn’t say this out loud).  His wife is probably against it (but what do I know).  He will probably run (the betting markets will go insane if he doesn’t).

Bernie Sanders – 15c

Ah, Bernie.  He’s supposed to be running by now, and yet no official announcement.  I’m very curious to see what his price does if and when he does.  While I’m pretty bearish on his overall chances, he does (or did) have quite the legion of loyal followers, the proportion of whom is over-represented among market participants (most traders are young, male, white).  Could he spike to 20c?  Note that he’s already well off his lows of 11c when we had no reporting at all that he might run, so some of the spike might be already built in at this point.

Elizabeth Warren – 10c

What I wrote about Warren seems pretty true still:

Her path – Put out lots of policy proposals thinking they’ll matter and drop out on March 11.  No, uh, let’s see.  Win NH and knock out Bernie, hoping he endorses her (their politics are close enough).  Carry MA and hold her own in CA/TX on Super Tuesday.  Hope the field is bunched enough that she can grind it out for a plurality at the convention.

She’s obliged by putting out several policy proposals, and, to her credit, drawing reasonably impressive crowds all over Iowa.  She acquits herself well in the town hall format and I still maintain that she’s the smartest candidate in the field.  In the market, she really benefited by being first – her price ballooned when folks saw the response she got in Iowa.  But the air started going out as more and more people jumped in and it became clear she was benefiting, in significant part, from just overall heightened interest on the part of the Democratic electorate (note as well she had a coincident dip in value as Klobuchar’s stock rose on initial reports the Minnesota senator was running).

If she can keep up this level of engagement, I think she could catch the chase pack, but I doubt she threatens the leader of the market until she proves herself with some real votes.

Cory Booker – 8c

He’s in, he’s hungry, he had a great announcement video.  And yet his price really hasn’t done much aside from the announcement spike.  Of course, still a long way to go.

Amy Klobuchar – 8c

I actually didn’t really expect her to run, but here we are!  She’s going to work her Iowa-centric path hard, but she faces the same sort of price barrier that the rest of the people in the thick of the pack face.  Her announcement spike was quite large though, suggesting that the market is receptive to the possibility of elevating her to the next tier at some point.

Sherrod Brown – 7c

If he runs (a reasonable possibility) I expect an announcement bump and not much else.  He might eat some of Klobuchar’s value but really he’s in the same position as everyone else in this group (the initial rise in his value from 0c comes from when PredictIt added him to the market).

Kirsten Gillibrand – 5c

She just really hasn’t caught on, and has taken on all kinds of water as more and more people have entered the field.  Her best shot (beyond a viral moment or two) is to hope the entire field flattens out and she can catch enough delegates to hang in there through to Super Tuesday.

The Big Unanswered Questions

Are the Three White Dudes gonna run or what?

If one of them decides not to run, who gets their value?

If they all run, do they take value from the rest of the field or from each other, leaving things roughly as is?

If and when PredictIt finally adds Julian Castro to the market, where does he end up?  If Tulsi is added, would she even see 3c?

Good luck out there, traders!

 

Oh god, do we have to bet on Brexit this week?

No seriously, after two great weeks to start off 2019 we’re now suddenly thrust into a situation with three out of the four tweet markets already dead or on life support and nothing else seemingly going on (save us Mike Pence).  The latest OPM shutdown market is now petering out after some rather amazing weather-related gyrations over the weekend (don’t ask if you haven’t been following that one) ending in a classic rules debate with smart people split on both sides.  You can still place a wager there that Trump and Congress sort this thing out by Friday (or that PI chooses to pay out January 14) but it seems fairly well-cooked at this point.

There’s always polling markets?

538 TA | RCP TA

True.  And at least this week we are due for some polls on the shutdown.  As I write this, Quinnipiac is set to release their latest in about an hour.  For the rest of your Monday, you have Scott Rasmussen / HarrisX, YouGov daily, and any other surprises like the Civis Analytics that got posted around 12:30 pm.  So there’s still some life!  RCP TA has fewer polls to look forward to (as usual) but with relatively few polls on the board at least each update will move the average a lot.  I honestly can’t believe I have to bet more heavily than usual in there to make money this week…

So yeah.  Brexit?

MP’s voting for May’s plan?

The vote (or first such vote) on Theresa May’s Brexit plan apparently takes place tomorrow, and we have a market on how many MPs go for it (in what’s apparently expected to be a losing effort).  So a good little one-day research project, if you’re up for it, as there’s still a bit of money to be made here!  So yay learning new things or something?

2020 stuff

2020 DNOM | 2020 USPREZ

You can always churn shares in the 2020 markets of course.  We should be getting the latest installment of the CNN/DMR Iowa poll soon, and I’m watching that to see how much pop Warren gets out of her early visit there (and for being the first big one to declare).

Trump is also down to a recent low in the overall 2020 market, sinking sub-30 for the first time since the market opened.  This I would expect to recover into the mid-30s after the shutdown is resolved and his approval stops taking on water.  Or of course keep falling if the slog of poor news continues.  (And/or if any economic indicators start to actually show real evidence of recession).