There is almost always a huge run-up in betting activity on prediction markets right before and during an event (this is equally true for sports as well as elections). In my posting about this over at Betfair’s new blog, I show that in the 2004 Presidential cycle over half of all bets were made on election day.
What do folks think will happen over the week leading up to 4 November (seems like a great time for a market)? If we see a repeat of 2004, there will be tens of millions of dollars traded at the leading exchanges. Of course the last election was expected to be closed than the current one, so maybe there will not be so much activity.
Assuming there is a big surge in volume, what would be the appropriate trading strategy to use? I can think of several standard derivative strategies to take advantage of price volatility, but am curious to hear suggestions from more experienced traders.
Nothing complicated, but a variation of what has worked for months: buy Obama on dips. If he loses an early battleground state and drops a few percent or more, buy. Maybe put small buys every few points down to 60 in case anything weird happens like in 2004.