Thursday, October 16, 2008

Doom and Gloom? Consider Hedging with Intrade

Has the late unpleasantness got you down? Tired of seeing banks fail, investments dwindle and honest, otherwise sane people endorse a VP candidate better qualified for Romper Room than the White House?

The perfect solution is right in front of you. Use Intrade as a hedge.

Using money to offset real hardship is a time-honored trick. Insurance companies rely upon this approach to smooth over all manner of downers and upsets. So if you feel strongly about the election or the financial crisis, why not buy a little insurance of your own?

If you can imagine nothing worse than a McCain presidency, why, take a big position in 2008.PRES.McCAIN. If he wins, you'll curse the sun and moon, but you'll at least turn a big profit (he's currently trading at 18.6). And if he loses, you'll be so happy you won't miss the money.

Hope the economy pulls through? We all do. But if it doesn't, owning a little US.RECESSION.08 will help smooth the rough ride. What better way to counter your own personal recession than a little extra return when it hits?

It doesn't end there. Why not hedge against higher taxes on "Highest Marginal Single-Filer Fed Income Tax Rate to be Equal or Greater than 36% in 2009 Tax Year"? Boy, higher income taxes. That doesn't sound fun. But if it happens, an investment of $41.0 on 2009.INCOME.TAXRATE.>36% today will be worth $100.0. You could even invest just enough to cover a tax hike. No, really. Why not?

The possibilities are nearly endless. Say you hate Batman (who hates Batman?) and you can imagine nothing worse than The Dark Knight winning best picture. You’ll be glad you invested in BEST.PIC.DARKKNIGHT.

Live in the hurricane belt? I have a great pick for you, LANDFALL.08.FLORIDA. Current trading says there's just a 3.0% chance a Category 3 storm hits Florida this year, leaving a large financial upside to soften the blow if it does. There are other ways to profit from hurricanes, but believe me, you don’t want to do them.

Perhaps you're worried about bringing your fine art collection to market in the middle of this financial crisis. If so, you can hedge the risk that your Picasso's underperform at the auction podium with a short position in Intrade's MEI.MOSES.06JAN2009 fine art index futures.

In down times, we all need a little boost. Why not tie some financial upside to real-world events you dread? Intrade lets you do just that. A win could soften the blow with profit, and a loss – well, so what? The whole world is going your way.

Disclosure: I do not hold positions in any of the above markets.


Intrade said...

hedger said :

    I've been recommended this to my friends all year! But many feel that the can't bet for something they really wish doesn't happen -- sort of superstitious really.

Intrade said...

Relieved said :

    Good advice, thanks. I've no problem betting on something I know will happen even if I don't want it to.

Intrade said...

hedger2 said :

    Very good idea, but what if you don't hate anything?

Intrade said...

CactusCurt said :

    I definitely did not want to see Hillary win the Democratic nomination, so I bet that she would. Boy, am I glad I lost that bet. I also did not want to see the Democrats win the presidency, so I bet they would. Damn! Looks like I won that one.

Intrade said...

JCombs said :

    This whole scenario is predicated on the assumption that the prices currently reflected in contract values are accurate. The optimal strategy is to:
1.) Find mis-priced contracts
2.) Buy contracts whose market adjustment would be more repugnant to you. So, If you are a hard-core conservative in MN and currently think the probability of Franken winning should be .6 and it is currently priced at .5, both the correction and the final settlement itself will have a hedging quality.

Intrade said...

JudyS said :

    I've considered doing this in the upcoming elections. However, it would feel like I'm "betting against my team."