A tale of two markets by Peter the Punter
CON 358-363 LAB 202-207 LD 52-55
Betfair GE Party Line
CON 350-355 LAB 205-207.5 LD 50-54.5
Why are the prices so different?
Has anybody else noticed the discrepancy between the GE Spreads and Betfairâ€™s â€˜Party Seats Lineâ€™? The mid point sell of Labour on SPIN is 204.5; on the PSL it is 207.25.
Not a lot of difference, you might think. But hold on. The PSL sell price should always be *lower* than the spreads, not higher, as it is now. The reason for this is the very different nature of the risk.
The spreads donâ€™t really reflect the actual result people imagine will occur. Punters have to factor in the relative risk in taking a position. Labourâ€™s spread price is so low that the potential theoretical profit is much smaller than the theoretical loss.
So, even if you have a pessimistic view of Labourâ€™s chances, as I do, you may still be reluctant to sell at the current price of 202 because itâ€™s hard to imagine a profit of more than, say, 50 points and the theoretical loss if things turn the other way is enormous, and even if you think the chances of that happening are slim, you might still be reluctant to risk it and/or tie up funds, especially if you have to stump up margin payments.
It is for this reason that anybody looking at the SPIN prices as a guide to Labourâ€™s probable representation after the next GE would need to knock off about 25 seats to arrive at a more realistic estimate.
The PSL carries much less risk and is therefore a much more accurate guide to what punters think the final GE result will be. In the PSL market, you are always betting evens. Your potential losses are limited to your stake and you therefore know exactly what they can be when you place the bet. In other words you are guessing â€˜higher or lowerâ€™ when you make the bet and the market is a true snapshot view of what punters expect to happen. No adjustment is necessary to arrive at puntersâ€™ estimates of the eventual GE outcome.
Unless somebody can point out the logic in my argument, it seems that the SPIN and PSL sell prices for Labour (and by implication their other prices too) are inconsistent.
One of them has to be wrong, and by quite a wide margin. Which one? My guess is that itâ€™s the PSL. My own guestimate of Labourâ€™s GE result is about 180 – and I think Iâ€™m being generous. I wonâ€™t sell on the SPIN market at the current price of 202 because the risk isnâ€™t worth it for, say, 22 points and in any case I am well stocked up with Labour sells at better prices. But I will jolly well sell on the PSL market, and I have done. When Labour are trounced at the GE, as I am sure they will be, I expect to pick up a bonus Â£500 from my PSL sells, in addition to my SPIN profits. Unless Labourâ€™s fortunes reverse dramatically, this looks like a surefire win.
Why is the PSL so far out? I think people just donâ€™t understand how it works. This is reflected by the poor liquidity. That will change as the election approaches. Meanwhile, I would suggest to other political punters out there that there are bargains to be had (in decent sums) on the PSL market if you donâ€™t mind tying up a few quid until the GE.