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Liron comments on Arbitrage of prediction markets - Less Wrong
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No, you'd only lose $97.5 is if you believed Ron Paul has a 1% chance of being nominated on the day he got nominated.
Just sell Ron Paul at 3 points up to the limits of your linear utility of money, and set it to auto-buy the same number of Ron Paul shares if the price gets to 6 points.
Now from your perspective it's a high chance of $3x and a low chance of -$3x.
This is great advice, many thanks. Auto-buy is supported by Intrade? So there's no danger of the shares zooming past 6 points before I have a chance to buy them?
Of course the shares could get past 6 and then fall again - in fact they are most likely to - in which case you still lose overall. I'd probably use 9 rather than 6, since the irrational exuberance could conceivably go as high as 6.
If I'd known about this strategy when the right-wing bias on Intrade was rating Biden's chances of stepping down as VP nominee at something like 4%, I would have been a lot more likely to try to profit from it.