If I own Yes shares am I allowed to purchase No shares to play a spread?
It seems more likely to me that the YES price inflation is due to the much lower dollar tie-up of buying YES shares in a multi-proposition market.
What do you mean by saying that the NO markets are less efficient? YES and NO orders write to the same order book, and so they always have the same spread, and represent the same information...
The YES and NO markets are not actually separate though, so this question only applies to markets with multiple mutually exclusive options.
How did Intrade handle such cases?
What you describe is not arbitrage, it's hedging.
Yeah, it makes more sense when you're looking at multiple, mutually exclusive events. Unfortunately, when there's more than two options (as there would be, otherwise it would just be a single YES/NO event), you'd need to invent the concept of turning one YES share into many NO shares (and vice versa), and that might be tricky for the devs to implement. What do you do when someone puts in a limit order to buy a YES, it generates a sell order on a spread of NO shares, and then one NO gets bought and the others don't? Probably best to keep things simple and inefficient until the market gets a bit more liquid.
I think this question does not make sense with the way the market works.
There are not separate markets for YES and NO; buying a YES is exactly the same as selling a NO you don't have, and putting up the collateral for delivery of the contract. If you were to buy a YES and then buy a NO, you would be in exactly the same position if you had bought a YES and then sold it, and you would have had the exact same impact on the market.
You cannot buy a spread between YES and NO, you can only buy a YES and then sell it later, or buy a NO and then sell it later.
Yeah, I have "no" in something, and I want to buy "yes" because I think the price in yes will go up. I still think "no" will be the final outcome, so I'll hold onto those, but in the mean time, I want to make a penny or two on yes.
I would add the ability for this to function like the actual futures market and open a sell position as long as you close it with a buy. That would tighten spreads and get rid of some of the irrationality in the price spreads. Also interchangeable orders in related markets. Together, those two would make these markets more logical models.
For example: I'd like to sell 100 lots of a Republican victory at $.60 and buy a Democratic loss at $.50. Those two should cancel each other out and allow people to make $.10
There should be no excused for a market with a binary choice to have a market at 56% and 54% on the two sides of the market. Allowing cross market positions to cancel out and allowing buy AND sell options would fix these inefficiencies, free up liquidity, and close spreads.
Blueraider, I'm not sure you follow what Gary means by "arbitrage," i.e., he wants to be able to buy and sell assets simultaneously to take advantage of market inefficiencies/differing prices. The Romney example you cite, assuming nobody is buying "yes," isn't applicable.
FWIW, I agree with most of the above comments. In fact, anything that would encourage more liquidity and smaller spreads, I think, should be welcome here.
I like the idea of only being able to own stock in YES or NO. It means you have to actually be invested in your answer. You make money on this site by buying the right stock (Whether it is stock you BELIEVE in or just something you believe will happen is personal choice), not by finding a profitable spread.
The only problem I see is if you have stock in one and then something that happens and you change your mind. You can't buy any of the alternative stock until you've sold all your previous, which means you're probably selling at a loss and buying it at a higher price than when your mind actually changed, especially if the reason your mind changed is because some news went public, which affects EVERYONE'S predictions.
Arbitrage does exist on the site, though. Romney announced almost a week ago that he isn't running, but NO was still for sale at 93 cents. It isn't A LOT of arbitrage, but with a lot of those situations, you could probably get some easy, albeit small, profit.