The Clinton Arbitrage

The 2016 US Presidential election so far has been a splendid spectator affair. What was quite interesting to observe was Hillary Clinton having a recent health scare during a 9/11 memorial event. Now I am not one to be drawn into political debate, but I am one to analyse the odds around incidents such as these. Was there a dollar to be made?

Looking at betfair, things get interesting. Hillary clinton is currently at $1.57 to take the presidency, but the democrats are currently at only $1.44. That seems like quite the discrepancy. It seems like the odds are suggesting that there is beyond a miniscule chance that the democrats will win without Hillary. What I want to do is bet against that notion, by backing Hillary to win but laying the Democrats in the event that Trump takes the victory.

Lets say I have $10,000 to risk on this bet. I can back Hillary at $1.57 ($14k on the table), and lay the Democrats at $1.46 (can lay currently at $1.45 but only $xxx, $1.46 has $11k on the table). Placing $4818 on Hillary and $5182 against yields $364 return (96.5%) unless a democrat other than Hillary is elected.

But then you need to take into fees. If you are slugged 5% on betfairs lower rung, that return drops to $185 (98.2%), or $292 (97.2%). Not as enticing.

Still, that implies a ~3% chance that the US will elect a democrat other than Hillary to the top job in a vote held in less than 2 months. For that to happen:

• Hillary needs to drop out. The only way I can see that happening is an assassination or health issue causing her to drop dead. The email server troubles seem to have passed, and nothing short of dropping dead before the election day will change this. Even if she has a serious health issue, she would soldier through to win for the democrats before handing over the reigns (this is just my personal opinion)
• Her replacement would need to win. This is a tough ask given the need to establish themselves as a candidate amid such controversy, and would greatly favour the republican.

Therefore I would place the odds of that happening at less than 3%, and would entertain the bet. Alternatively if you hold that view, you can lay Joe Biden at $34 and Bernie Sanders at $65, although the volume isn't there to put $10k on the line. Laying a mix of those two would probably be a safer option.

If I had a riskable $10k on tap I would consider it at the fee free rate, but once betfair fees on arbitrage between different markets comes in, it halves the profit and kills the incentive. Given my financial position I would consider max of $1k on this bet, however I feel with a less than 1% edge it is not worth the hassle. Also my lack of intimate knowledge of the US electoral system leaves possible unknown factors that makes me less comfortable.

What started out looking as quite a large margin ($1.57 vs $1.46), once you take in fees and hedging both sides, doesn't give the reward that I initially thought.

Just had a look around. Ladbrokes is offering Hillary at 1.57. No commissions. No notion on liquidity, however based on past experience they try to limit exposure to $1,000. Could try placing the first few bets at that price