Thompson is tanking. Why?

Good stuff, Ran. Are there any of those technical indicators available on Intrade that you find most useful?

Well I just broke my own plans, and covered my Thompson shorts at 6. I decided, "Would I really short this contract today at 6?" Probably not. There is after all some possibility he could rally and improve.

Sold him at 16.3 so I can't complain too much about making over ten points on these.

ko wrote:

Good stuff, Ran. Are there any of those technical indicators available on Intrade that you find most useful?

ko, I don't find technical indicators very useful. I think fundamentals are a pretty good guide to prices in the medium run, although substantial mispricing can arise in the short run. This is where the real money is made: jumping on an opportunity before others do. The problem is in spotting the opportunity. If something looks over or undervalued, is it because of some information that I haven't yet seen?

If I usually spot some recent news or analysis that I find particularly persuasive, the first thing I look at is whether the price has jumped recently. If it has, the information is already in the price, possibly with an overreaction built in. But if the price hasn't moved much in a day or two, it's likely that the new information has not yet been absorbed into the price. That's usually a good time to trade.

Long answer to a short question, sorry about that...

Yeah, I definitely agree that the no arbitrage principle should work so long as the market is working efficiently / has high enough volume. That's fairly intuitive anyway, so understanding that formally doesn't really give anyone an edge in the market.

I don't really know anything about what goes in to calculating these technical indicators, but to the extent that they are valuable for predicting future prices, my sense is that they would probably be more useful when trading is dominated by what I'm calling market dynamics. Political futures are much more like derivatives than stock, which is why I expressed skepticism over the value of analyzing past price/volume trends in predicting future prices.

I'm still curious however, if they might have some value for predicting cyclical behavior and fluctuations that occur a long time before the contract expires, when no new information is really being added. If you look at the movement of nomination contracts in prior to 2006 midterms, most of the shifts are hard to explain in terms of the fundamentals. Sure there was the occasional relevant news event like Bill Frist winning the SRLC straw poll (didn't really change the fundamentals but legitimately moved the price) or George Allen's Macaca moment (clearly did change the fundamentals), but many fluctuations seemed to just be the market moving absent any justification based on the facts on the ground. Now, this may just be noise and thus impossible to predict, but I wonder if technical indicators might be useful for understanding how best to take advantage of these market movements. Again, I'm really speculating here because I don't have any expertise in this area, but I'd really like to hear if anyone has further thoughts on this.

GAW838 wrote:

many fluctuations seemed to just be the market moving absent any justification based on the facts on the ground. Now, this may just be noise and thus impossible to predict, but I wonder if technical indicators might be useful for understanding how best to take advantage of these market movements

When I see market moves that I can't associate with changes in fundamentals, I think that either (i) there's some news out there that I haven't heard yet, or (ii) someone is profit-taking, or (iii) someone wants liquidity and is converting to cash, possibly at a loss.

So for example, when Tozikio covered his Thompson shorts earlier, it was not based on any news about fundamentals. But it would have shown up as a buy order which put upward pressure on the price.

I'm not sure if any technical indicators can really help predict such moves. They certainly can't predict unexpected events (by definition). But maybe measures of short-sales, open interest, etc could help. I'm skeptical.

I would argue that his buy order was based on the fundamentals, if not the 'news'. There was a large selloff on Thompson (which I assume was mostly longs bailing rather than new shorts) and that drove price down a lot, so far that it was no longer a good short in the eyes of many, on the merits. So, the market had to correct for a overreaction to earlier bad news.

Once we're in campaign season, it's really hard to say what counts as news. What I'm really curious about it is when there are long periods where nothing happens, but prices still fluctuate significantly.

GAW, maybe this is just semantics, but I see the initial drop in Thompson price as being in response to information, and the small bump up when people cover shorts as being noise. After all, the timing of the cover and even the price is somehwat arbitrary. I think Tozikio just decided that the contract was roughly at fair value and decided to bail out.

Remember that the absence of news is also information. Take Hagel for example. His price fell over time because he didn't announce. Same goes for Gore. After all (as you yourself pointed out), prices must eventually converge to 0 or 1 as the expiration date draws near. They do so more or less continuously in the absence of major surprises.

You're pretty much right. I still think Thompson won't win the nomination (fundamentals.) But why hold a short at 6 that won't mature until well into 2008, when there are still other plausible contracts available that expire Dec 31 with better payoffs.

The "time value of money" and "better returns elsewhere" can be factors to consider. If I thought there was nothing else that interested me, then I might have just left the short in. Risk matters too. My Gore shorts are under 6. But I'll keep those because they are "almost guaranteed" to pay off.

I also agree with the analogy that Intrade contracts are better compared to options than to stocks. They aren't even really comparable to futures. If a future is expiring, but you still believe in it, you can just roll your money into the next future. (IE, price of corn, oil, etc.) Options must expire in the money, or out of the money.

Tozikio wrote:

But why hold a short at 6 that won't mature until well into 2008, when there are still other plausible contracts available that expire Dec 31 with better payoffs. The "time value of money" and "better returns elsewhere" can be factors to consider.

That's a very good point. There's a certain point where the market itself has more weight than just what is going on with that contract. It makes me wonder how much liquidity comes into play at that point in the decision cycle as well. Once the contract drops below a certain point, it is not really all that liquid and there's not much volume. There can't be that many folks going in short with the hope to cash in at the bottom, right? If that is the case, wouldn't the primary volume be the bargain hunters at that point?

Fred Thompson 6th place in Marist College poll, down from 10% to 5% in New Hampshire.

http://www.maristpoll.marist.edu/NH/NHPZ0711.htm

Now, I know polls can be distorted, but it's hard for me to see anything other than a stalled/sinking campaign. At least Paul and Huckabee, while single digits, improved their numbers since October and are leading Thompson.

It may not be long before we read about Thompson pulling out of the granite state. And I think his campaign will implode if he does not win or come a close 2nd in South Carolina.

Tozikio wrote:

It may not be long before we read about Thompson pulling out of the granite state. And I think his campaign will implode if he does not win or come a close 2nd in South Carolina.

There's no change on the Fred.Dropout contract today. Maybe it's a bargain at the offering price of 9.2.

Looks like the Prediction Market numbers are starting to have their impact in the blogosphere. Is it polite to call us "bookies"?

http://www.thestreet.com/s/bookies-thompson-out-rudy-and-mitt-tops/newsanalysis/investing/10389193.html?puc=_googlen?cm_ven=GOOGLEN&cm_cat=FREE&cm_ite=NA

Bookies: Thompson Out, Rudy and Mitt Tops

By Brett Arends
Mutual Funds Columnist
11/9/2007 10:21 AM EST

......Excerpt.....

Fred Thompson's campaign for president has collapsed.

Fidelity Investments
Charles Schwab

Global Forex
Zecco.com

TD AMERITRADE
E*TRADE FINANCIAL

Well, at least, among the bookies.

I've been giving readers regular updates on the betting in the presidential election, but absolutely nothing has been more dramatic this fall than Thompson's market meltdown. According to the betting at the Iowa Electronic Markets, the TV actor's chances of winning the GOP nomination have slumped in just six weeks from nearly 30% to less than 10%.

As recently as June, just after the former Senator announced he was running, he was the favorite in the betting, at nearly 40%.

The numbers are similar over at Dublin-based betting exchange InTrade. Thompson was at 35% in July. Today? 6%.

----Excerpt----

Well his dropout contract is trading higher than the other dropouts, which is a hint that Intraders have less faith in him. But considering that he did have several million to campaign on, I think it's reasonable to assume that he'll at least make it to the balloting in the lead states.

I also think the press gives as a little too much credit. There are so many contracts on here, and not that many people dealing in size. It's more like they're reporting the opinions of a group of fishing buddies in a boat.

Boston Globe this morning:

http://tinyurl.com/24enzs

Yes, I *am* out of my Thompson presidential short, but I can't resist a little gloating.

I thought all along this guy was a paper tiger. His Hamlet-like brooding for weeks before joining the race convinced me from the start he was not serious.

The Reaganesque aura that was built up for him has evaporated. Now the press is starting to doubt him, even snicker to some extent... the longer this goes on, the harder it will be to overcome.

Well I was trying to get some new Thompson shorts for NH only, and nobody was taking my offers in the 7's because somebody is offering to sell at 2.9

OK, I will move along. Man, you guys are cruel.

Tozikio wrote:

Well I just broke my own plans, and covered my Thompson shorts at 6. I decided, "Would I really short this contract today at 6?" Probably not. There is after all some possibility he could rally and improve.

Sold him at 16.3 so I can't complain too much about making over ten points on these.

GAW838 wrote:

I would argue that his buy order was based on the fundamentals, if not the 'news'. There was a large selloff on Thompson (which I assume was mostly longs bailing rather than new shorts) and that drove price down a lot, so far that it was no longer a good short in the eyes of many, on the merits. So, the market had to correct for a overreaction to earlier bad news.

Once we're in campaign season, it's really hard to say what counts as news. What I'm really curious about it is when there are long periods where nothing happens, but prices still fluctuate significantly.

So, Tozikio, I would like to ask if you changed your plans on the basis of the news you heard here? What is news and what is 'news'? How much did rumor have a play in it?

I think we're going to see a lot of shorting opportunities, especially after Iowa, so I wonder what triggers the decision to cover the short.