Betting on the 2012 Presidential Election of USA has been available for quite long time at the sports betting exchange, Betfair. It is now though that the graph of Barack Obama’s odds can help traders actually make money before even the elections begin! For those unfamiliar with sports trading, you can buy (lay) or sell (back) the odds of a sport event and take profits before the event kicks off. You may wonder how politics have anything to do with sports though, but political betting is a common market of spread betting firms and online bookmakers. Betting on politics has always been one of my favorite markets to trade, due to the long duration of trading and calm odds’ fluctuations compared to football or tennis betting.
What is so special about the introductory betting graph of Barack Obama’s odds for Next President? I suppose most TradingGraphs visitors are quite familiar with technical analysis and financial charts. Therefore you must have already pointed out the support level at 1.50 and the resistance level at 2.00. Those are decimal odds of Barack Obama winning the 2012 US Presidential Election. In US odds they are the same as -200 and +100 respectively while for those accustomed with fractional odds, they mean 1-2 and 1-1. As the odds are traded close to the support level and the betting action has already verified that price level, I would suggest a possible lay bet with a likely profit target at 2.00. How much profit would that trade bring?
Say you have a trading capital of $1,000 and you don’t want to risk more than 2% of that in any trade. Specifically you need to risk no more than $20. Say we lay Barack Obama at 1.60 and set a stop loss at 1.45. Due to the money management rule we’ve defined, we must lay $200 at 1.60 in order to stand to lose $20 if we are wrong. The following image is quite self-explanatory.
Now we will assume Obama’s odds continue drifting up to the resistance level where we will exit the position. Trading out $160 with a back bet at 2.00 would result in securing $40 profit no matter the election’s outcome! Again check out the image:
This special political trade I’m suggesting of has a 2-1 reward-risk ratio, which needs to win at least 33% just to break even. The real question is whether we estimate the probability of Obama’s odds climbing back up to 2.00 more than 33% or lower. Because if we believe sports traders will lay Obama – or back any other candidate like Mitt Romney – the odds will rise and we will make money as shown above.
Trading on a political event such as US Presidential Election of 2012 might sound awkward for some readers, but the betting graph is nothing more or less than a stock graph. All we have to do is predict correctly the odds movement – like the stock price – more often than wrong. I guess I should say that this kind of trade resembles more of futures trading rather than stock trading, since there’s a specific date when your trade will eventually close automatically. And that is the Election Day!