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Is it worth betting on an early general election?

June 29th, 2007

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    New spread market: How many weeks to go?

Spread-betting works best when it is linked to a specific numerical outcome such as “how many seats will Labour get?” or “how many states will the Democrats take in the 2008 White House Race?”. You look at the prices and decide whether the total will be lower, in which case you sell, or higher in which case you buy.

You choose how much you want to bet and that becomes your stake level. So if you think in this new market that Gordon will go to the country earlier than the May 2009 suggested by the prices you sell at the current 84.5 level. Should the polls continue to be good for Labour and Brown decides to risk it in, say, October this year the outcome might be 13 weeks. In that case your profit would be 84.5 minus the 13 multiplied by your stake.

    The seductive principle being that the more you are right the more you win and the more you are wrong the more you lose.

What can make this form of betting so tantalising to some gamblers is that you can close down your position earlier and pocket your profit or curtail a potential loss. So you are not betting on what will actually happen but your assessment of what other punters will do.

Thus over the past few months I’ve been trading the number of seats that Labour will get at the election buying and selling when I think that sentiment might change and the market will move.

So what about the new “Gordon Brown weeks” market that is featured? Is there value in the buy price 88.75 weeks or the sell price of 84.5?

What’s going to drive this, surely, is Labour’s poll position and punters’ assessment of whether Gord would take a gamble by going earlier. So if the Brown honeymoon continues and poll ratings look good then the spread will drop and there might be profits to be had.

    But if the Brown honeymoon is brought to a stop by, say, poor Labour by election performances in three weeks then the chances of the parliament going to its full five year term will be seen as being greater and the spread will rise.

At these prices the outcome is finely balanced and I don’t have much conviction either way at the moment – so I am going to pass. But I will be watching the Lib Dems in both Ealing Southall and Sedgefield. If there are signs of a sensation then I might buy in this market – if not then I could sell.

Mike Smithson

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