Yesterday, you learned how to convert pounds into dollars. But wait! Why not bet your pounds on Bush?
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David Durst: ‘The trade-betting houses in London have ‘Bush to Win’ trading at 70 cents (out of 100). Today, I shorted 2500 Bush ‘futures’ at 70. This means that if held to election day and Bush wins, I lose $7500 (each contract point is 10 cents, so 2500 of them is $250, and if ‘Bush to Win’ goes from 70 to 100, and I’ve shorted it, that’s 30 points times $250 = $7,500). But these things trade like futures – so if at any time during the year, the market perceives this to be a 50/50 toss-up (say around the time of the Convention??), then the futures will be trading at 50 and I can take the bet off for a profit of $5000 . . . or let it ride (in whole or part) for an eventual zero expiration (when Bush loses) and I take in $17,500 profit.
‘I think that its a ‘gimme’ that at some point in the next 9 months this is going to look very close. You can trade these on margin so you don’t even have to tie up the cash – and there is less ‘credit’ risk that way, in case ‘the house’ disappears.
‘There are 2 betting exchanges that I use, tradesports.com and betfair.com. They basically work the same way – though at the moment, there is a lot more liquidity on tradesports for the Presidential futures, and they also allow margin, which is great because, as I say, it reduces your risk if they disappear. I have been fairly active with them for a couple of years now and so far no problems. In January, 2003, I bought year-end Dow 10,000+ futures at 9 cents and they paid off nicely in December – no problems. That was a couple of grand.
‘Of course, when dealing with these houses, you must realize that one day you might type the url into your browser and get a blank screen after they run away with all our money. I don’t expect that to happen – but I will not be completely surprised if it does! Good luck!’
☞ Good heavens. You can even bet on the election outcome in each individual state. Or on the chances Hillary will get the nomination or that Richardson will be the VP.
Will Galway: ‘This kind of thing intrigues me. (I’m a mathematician, so perhaps a bit of a frustrated ‘quant.’) Is it legal? If so, how are winnings taxed? 3.) How trustworthy are the various websites, like intrade.com?’
☞ Intrade appears to be almost identical to Tradesports, and comes within three digits of the same toll-free number (866-303-1927 versus 866-303-1930), and so is presumably the same Dublin, Ireland outfit. Is it legal for U.S. citizens to gamble? When I asked the Irish tradesports.com representative, she said she thought it was for residents of some states but not others, and she didn’t know which. Even if it is legal, gambling is, at best, never a great idea (though even if it’s not legal, it’s hard to imagine your being prosecuted).
The answer to the second question is simple: gambling winnings are taxed as ordinary income (i.e., fully subject to ordinary income tax). I doubt the IRS would agree to treat these as futures contracts subject to potentially more favorable tax treatment. As to trustworthiness, I have no clue.
Quote of the Day
Guys, just remember: if you get real lucky, if you make a lot of money, if you go out and buy a lot of stuff, it's gonna break. You got your biggest, fanciest mansion in the world. It has air conditioning. It has a pool. Just think of all the pumps that are going to go out. Or go to a yacht basin any place in the world. Nobody is smiling and I'll tell you why: something broke that morning. The generator's out, the microwave oven doesn't work, the cook's gay. Things just don't mean happiness.~Ross Perot to Harvard B-School students, quoted in Forbes
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