'Barack Obama' Shares Plunge Post-Debate On Intrade Prediction Market
Over the past ten days, the chance of Barack Obama being re-elected president has plummeted from approximately 79.0%, to 63.0%, according to the prediction platform, Intrade.
Intrade describes itself as “a platform where you make predictions by buying and selling shares on the outcome of real-world events. These events are always defined on Intrade as a YES/NO proposition.”
In layman’s terms, the Intrade website allows clients to wager real money on the probability of events occurring or not occurring (“Yes,” it will happen, or “No” it won’t). Clients can buy and sell shares on the Intrade platform just as investors would buy and sell stocks in the financial markets.
One of the “Real-World Events” featured on the Intrade platform is “Barack Obama to be re-elected President in 2012.” The "BUY" price for this event at the time of this post was $6.27 per share. That means that an Intrade client could buy one share for $6.27 to bet on Barack Obama winning the presidential election in November.
A chart that tracks the fluctuations in price for the Barack Obama shares shows that over the last ten days (Sept. 30 - Oct. 10), more clients have been selling shares than buying them. The chart shows the price per share falling steadily in the days leading up to the first presidential debate in Denver Colorado on Wednesday, October 3rd.
In the week following the debate, the price of Barack Obama shares fell sharply, from approximately $7.40/share (or 74% chance of being re-elected) to $6.30/per share (or 63.0% chance). On a percentage basis, this one-week drop represents a 15.0% loss in the price of Barack Obama shares; and over the last ten days, a 20% decline.
The Intrade website explains:
When the outcome of an event is known, the market is settled. The market will always be settled at either $0.00 or $10.00 according to the actual real-life outcome:
· YES, the market event has happened - the market will be settled at $10.00
· NO, the market event has not happened - the market will be settled at $0.00
Simply put, if an Intrade client bets on Barack Obama winning re-election by buying a share today at the current market price of $6.27, the client will earn the difference between the settlement price ($10.00) and his/her entry price (in this example, $6.27); if Barack Obama indeed wins re-election.
Of course, if Barack Obama should lose re-election in November, the client would lose his/her initial investment of $6.27, as the “event” would not have happened and the market would settle at $0.00.
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