Who will finish third or worse in the early primaries?

Predictit has second place markets for New Hampshire and South Carolina, but somehow still hasn’t launched one for Iowa.  I like looking at the first and second place markets together because they provide a clearer picture of the market’s expectations and they give us some new ways to get a good return on risk through no bets. 

Since a candidate can’t come in first and second, you can buy no shares on one candidate in both markets and be guaranteed to win in at least one of them.  Let’s take a look at the prices in both states.  

New Hampshire

Here are the New Hampshire prices as of Sunday afternoon:

The Top 2 yes column is just the sum of the yes prices in both markets.  The top 2 no column is where I think the bargains are. Here’s how I’m calculating value at risk for the not top two bet in the last column:  Say you think Biden is going to finish third or worse in New Hampshire. If you buy a no share in both markets, you have to tie up $1.64 but your largest possible loss is $0.66. That’s because if he can’t finish both first and second. If he wins, would lose $0.87 in the first place market but gain $0.21 in profit from the second place market.  Your winnings from the second place market would offset your losses in the first place market and your net loss would be $0.66.

Here’s the cost and rates of return for betting on a third place or worse finish for each of the candidates that have no shares available in both markets.  

I’d start off with doing this for everyone but Buttigieg, Sanders, Warren, and Biden.  No one other than those four has ever been in the top two in RCP’s New Hampshire average, and nobody outside that group has cracked 10% support since Harris dropped below that level in August.  Betting against a top 2 finish from Yang, Gabbard, Klobuchar, and Clinton requires $90.00 in the first place market and $90.00 in the second place market for a total cost of $180.00 to win $19.80.  That’s an 11% return in a little over two months.  

Biden looks like the best option out of the top tier candidates.  He and Warren have both had a rough November in New Hampshire polls, but his no shares are cheaper, he looks like he has less chance of getting a bump from Iowa, and his campaign is setting low expectations for his performance in the first two contests.  I also think the other candidates’ attacks (and lefty twitter’s wrath) is going to shift away from Buttigieg and back to Biden pretty soon. That may not matter a lot, but it also isn’t going to help him. Adding him in with the four long shots brings the cost down to $147.60 to win $52.20. You’d get a 35.3% return as long as some combination of Warren, Sanders, and Buttigieg finish 1 – 2 in any order.  

South Carolina

This one’s a little different because the polling says Biden has a 20 point lead. Here are the South Carolina prices: 

And here’s the cost and rates of return for betting on a third place or worse finish for each of the candidates that have no shares available in both markets.  

Betting no in both markets on everyone outside the top 4 costs $179.10 to win $20.70.  That’s an 11.6% return with pretty minimal risk. Of the top tier candidates, Warren and Buttigieg are the best prospects for finishing outside the top two and they’re priced about the same.  RCP’s South Carolina average shows Warren at 16.3% and Buttigieg at 6.5%, but the most recent poll in their average ended on November 17. Their support levels are probably closer to each other by now. I actually don’t think either one of them are breaking into the top two.  That leaves Biden and Sanders.  

Buying no shares on everyone but Biden and Sanders in both markets costs $132.30 to win $67.50.  That’s a 51% return on investment, which is only slightly better than just buying $0.68 shares of Biden to win.  But this trade provides some protection that Biden shares don’t. This trade only loses the full $132.30 in a worst case scenario, where $0.99 no share candidates finish 1 – 2.  As long as either Biden or Sanders finish in the top 2, the losses won’t be too bad. Say Biden wins and Buttigieg finishes second. This trade would win $23.40 in the first place market, but would lose $54.10 in the second place market.  The net loss would only be $30.70. The net loss is about the same if Warren comes in second. That seems pretty worth it to me.  

Disclaimer

I may own shares in any of the markets discussed in this post.  I intend to continue trading in these markets and in other markets.  Please do some additional research, and get advice from sources other than me, before making any investment decision. 

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