Brian Weath­er­son at Crooked Timber has a nice post today on arbi­trag­ing the Repub­li­can primary-​election pre­dic­tion mar­kets. Weatherson’s main point is that arbi­trage oppor­tu­ni­ties shouldn’t exist in a truly effi­cient market, and so the pre­dic­tion mar­kets might not be quite so effec­tive as people think. But in the course of making this argu­ment, he notes that the sig­nif­i­cant spreads among the dif­fer­ent mar­kets mean that there’s free money for the taking.

Here’s how to make an easy* $1000:

1/ First off, buy $500 worth of Giu­liani con­tracts at the Iowa Elec­tronic Mar­kets. (Five hun­dred dol­lars is the max­i­mum you can bet at IEM.) Giu­liani was was trad­ing at $0.233 this morning—the con­tracts pay $1.00 if he wins—which means you’d get 2145 shares for your $500.

2/ Next, short sell Giu­liani con­tracts at Intrade to bal­ance your long buy at IEM. Giu­liani con­tracts that pay $100 for a win were on offer for $27.30 this morn­ing, which means you’d need to short sell 21 Intrade con­tracts to offset your IEM bet. (Since Intrade doesn’t offer mar­gins, you’ll have to fund your account there with enough money—$2100—to cover a loss.)

3/ Sit back and wait for Sep­tem­ber. If Giu­liani wins the Repub­li­can nom­i­na­tion, you’ll bring home $2145 at IEM, which means you’ll make $1072 above and beyond the cost of your con­tracts. Count­ing the money you need to leave in your Intrade account to cover a loss, that’s a 41% profit. If Giu­liani loses, you’ll col­lect $2100 at Intrade, which means a profit of $1027, or 39%.

(Optional step #4: Donate your ill-​gotten gains to what­ever Demo­c­rat makes it through the pri­mary meat grinder.)

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*Okay, maybe not easy, espe­cially if you’re Amer­i­can. Under fed­eral law, the legal­ity of bet­ting in the elec­tion futures mar­kets is ques­tion­able, and some states specif­i­cally ban bet­ting on elec­tions. Check out this guide at Slate before you do some­thing you’ll regret. Also, the cal­cu­la­tions above don’t take account of trans­ac­tion costs.