Hedging Elections
Since I am a Finance major, I thought of this a few days ago.
Many people give money to candidates with the hope that person will win. Some people do this in the hopes of getting a job, having a friend in office or whatever else they give for. I was thinking, what if you hedged your political donations?
My theory is that you give money to your candidate, and then bet on the other candidate to win.
For instance, if you give George Allen $100, you would then buy 10 contracts/shares on Tradesports for about $37. So if Webb wins, you would get your $100 back; and if Allen wins, your money will still count anyway.
Just wondering what everyone thought of this.
UPDATE: You actually need to buy 16 contracts for $59.20 (16*$3.70) to hedge this position. This would yield you $160 for a Webb win - the $59.20 premium = $100.
Many people give money to candidates with the hope that person will win. Some people do this in the hopes of getting a job, having a friend in office or whatever else they give for. I was thinking, what if you hedged your political donations?
My theory is that you give money to your candidate, and then bet on the other candidate to win.
For instance, if you give George Allen $100, you would then buy 10 contracts/shares on Tradesports for about $37. So if Webb wins, you would get your $100 back; and if Allen wins, your money will still count anyway.
Just wondering what everyone thought of this.
UPDATE: You actually need to buy 16 contracts for $59.20 (16*$3.70) to hedge this position. This would yield you $160 for a Webb win - the $59.20 premium = $100.
posted by GOPHokie @ 11:10 AM
3 Comments:
At 10/18/2006 7:03 PM,
Anonymous said…
In that scenario, if Allen wins, aren't you out an extra $37? That's a fair percentage of the original investment.
At 10/18/2006 7:18 PM,
Anonymous said…
Good point anon-
Hokie you will need to make enough to get a $100 profit, not gross $100.
At 10/18/2006 7:20 PM,
GOPHokie said…
Anon, the $37 is the insurance that Allen might lose. Obviously the level of insurance is an individual decision like with any hedge decision.
As to the Webb win, I did mess that up.
Sorry about that, Lemme fix that.
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