My friend and housemate, User:Kevin, makes a very pleasant living selling opioids on the internet, a living he expects to continue for some time, unless something awful happens like Obama losing the next election. The Intrade contract for Obama's loss is currently trading at 42% -- what can User:Kevin do about this?

My suggestion was that he bet heavily on Obama's loss. Say he spends $4200 buying not-Obama futures. If Obama wins, that money becomes worthless, but he gets four years selling kratom regulation-free. On the other hand, say Palin takes a surprise victory and institutes draconian regulation on various substances -- User:Kevin's $4,200 has just become $10,000, leaving a $5800 windfall to help him while he finds his next muse.

This is nothing more than what we normally call buying insurance, just extended to whatever outcomes you may want to insure against. Let's talk about some of the effects of this action.