I’ve posted an explanation on my blog on how to capture riskless profits from Inkling markets (in certain specialized circumstances) under the grand title of “Secrets of an Inkling Top Trader.”

The profts at issue are usually small, so this is no “get rich quick” scheme. The post is probably mostly of interest to prediction market geeks or traders with more inklings than they know what to do with.

Check out “Secrets of an Inkling Top Trader: Spotting Riskless Arbitrage Opportunities” at www.knowledgeproblem.com.

-Mike Giberson “onemike”

Such as: A) Will Gore run for President in 2008? – Gore President
SHARES: 1 TRADE PRICE: $4.39 TOTAL PAID: $4.39 CURRENT PRICE: $4.38

& B) What popular though unlikely candidates will run for President in 2008? – Al Gore
purchased with credit (sold)
SHARES: (-)1 TRADE PRICE: $7.36 TOTAL PAID: $7.36 CURRENT PRICE: $7.40

An instant $2.97 profit. Either way. Finally all shares will become worth $0 or $100.
For me it makes no difference: owned shares=redemption for borrowed shares.

However, while waiting for both markets to close, $92.64 are retained for the borrowed share, as well as $4.39 were spent on the one I bought.
Market managers having chosen to close their respective markets on Dec 31, 2007 and Sept 5, 2008 disturbs the otherwise great example.

Anyhow, the $2.97 profit has to be valued against the $97.03 withheld for some time.
On one hand these shares ought to be exchangeable.
On the other; Such opportunities would be scarce on markets where more is at stake.

For a current example look at:

“Will UCF repeat as 2008 CUSA Football Champion” currently trading at $37.29 for “yes”.

http://home.inklingmarkets.com/stocks/29761/tra…

Versus “What team will win the 2008 CUSA Football Championship?” where UCF currently trades at $13.79.

http://home.inklingmarkets.com/markets/8855

I not a math major but I believe that translates into 20+ free inkles/share irrespective of who wins by shorting the first and going long the second. Of course, no pay-off until December.

Warning – I have already made that trade when the spread was much wider. Needless to say, I might trade out of the position for liquidity to put in to other markets if the gaps closes further leaving subsequent investors with a position that is under water until markets pay out. As long as you are willing to wait, no big deal, otherwise “buyer beware”.