Naked Shorts on Intrade
Nate Silver has a really interesting post up about the Intrade futures market behavior with respect to the Presidential election. He notices that someone is shorting Obama contracts at regular intervals, and pumping up Hillary Clinton’s contract at the same time:
Most likely, this is just some idiot degenerate gambler who is trying to have some fun. Between the Obama and McCain contracts, there appears to be about $400,000 in contracts changing hands every day, which is a lot by Main Street standards, but minuscule by either Vegas or Wall Street Standards … the trades seem to be occurring at exactly the same times. So someone is betting on some sort of disqualifying event happening to Obama.
If true, the market would be effectively showing the value of naked short selling – uncovering important, value-relevant, information. Of course, as the comment thread (which is amazingly good) has thrashed out, it’s more likely the pattern is an artifact of the site’s artificially low rate of return on winning bids on the favorite. The post, and the comments, are worth your time.