Hickey and Walters (Bespoke) submit: We like to analyze various contracts on Tradesports.com from time to time to find where investors are placing their bets on events or outcomes that are otherwise "untradeable". While we realize the volume on many of these contracts is low and the "predictability" of them has been disputed, they still provide insight and even offer hedging and other opportunities for individuals that have the ability to trade them.
Two interesting contracts currently trading on Tradesports are shown below. The first is a contract for whether or not the US will go into a recession at some point during 2007. The contract for this to happen is currently trading at 13.5, putting the prediction market "odds" of a US recession in '07 at 13.5%. Tradesports now offers individuals the ability to download historical prices of the contracts. As shown below, the contract price has been dropping steadily since late March, indicating the odds for a recession are getting smaller and smaller. Interestingly, the odds of a recession ticked much higher in late February/early March, which coincided with equity market declines.
The second contract we looked at was for oil to close on or above $80/barrel on December 31, 2007. Currently, the contract is trading at 29, indicating traders believe there is almost a one in three chance of this happening. While the direction of these contracts tend to track the underlying price of the commodity, we were surprised to see the odds so high since the current price of oil is just $61.93. For the contract not to expire worthless, oil has to be trading at or above $80/barrel on December 31, 2007, when prices are typically lower than during the summer months. Still, a lot can happen between now and December.