Contract on America: The Capitol Trader Takes on his Home State
While the New York Times’ Metro Section rarely demonstrates itself to be ahead of the curve on regional trends, it proved on Sunday that it isn’t totally behind the curve either in its below-the-fold story about New Jersey’s uneven political allegiances. Of the several factors the Times stated as influential in this year’s elections, by far the most eyebrow-raising from a betting standpoint is a Quinnipiac poll released last week showing Bush and Kerry tied at 48 percent among likely voters in the state. How high should we raise our eyebrows? Consider the following:
- Gore carried the Garden State by a 16 percent margin in 2000;
- Democrats control the state house, both senate seats, both houses of state legislature and seven of its 13 congressional seats;
- registered Democrats outnumber registered Republicans by 264,000 voters;
- New Jersey last voted GOP in 1988.
Say what you will about the accuracy of political polling, but in light of the above facts, a 48-48 tie can hardly be attributed to statistical error. The primary reasons for such an about-face, and the Times isn’t the first to point this out, is the Garden State’s proximity to 9/11, both geographically and emotionally.
One fact that the Times neglected to mention – probably because the paper isn’t in the business of oddsmaking – is that before Clinton, the last Democrat to carry New Jersey was LBJ in 1964. Obviously history isn’t everything, but it does puncture the common perception of New Jersey as a Democratic stronghold, which leads us to the next point of contention in the Times’ piece:
“Despite the polls showing a tightening race, neither side is willing to declare New Jersey a true battleground. Strategists for Mr. Bush are watching the state closely…but other than a visit by the first lady…the campaign has not allocated any additional resources for the state.”
Here’s a question – if neither side is willing to declare New Jersey a battleground, then what was John Edwards doing at a campaign rally in Newark and a fund raiser in East Brunswick last week? Oh, I don’t know – perhaps appealing to the 2.6 million politically unaffiliated voters in the state? The Bush campaign may not have allocated any additional resources for the state, but the Dems are clearly starting to read the writing on the wall. And at least one political columnist – Tom Moran of the state’s largest newspaper, the Star-Ledger –declared on Tuesday that New Jersey is a dead heat, thanks to the shifting allegiances of so-called “security moms.” The Associated Press picked up on the trend in a Tuesday night report of Edwards’ campaigning, citing a “virtual dead heat” in a state “once considered a lock for the Democrats.”
Only one item remains to be mentioned here for betting purposes: McGreevey. Considering that McGreevey’s approval ratings have actually gone up since he announced his resignation, the temporary disaster the scandal caused for local Democrats appears as though it will remain unconnected to Kerry’s bid for the state. So while the national press will no doubt continue referring to the scandal as necessary background, it is basically a non-factor for betting purposes.
The Numbers
As recently as August, the futures contract on Bush winning New Jersey was trading thinly at around 10 cents on the dollar. Since the Quinnipiac poll was released, however, the market has moved drastically in Bush’s favor, where the bid/ask spread as of Tuesday evening stood at 29/31.4. In bookmaking parlance, the odds just moved from being a 10-to-1 payout up to nearly 3-to-1, though the market clearly still considers Kerry to be a strong favorite.
An argument could be made that the profit-taking has already happened and that anyone getting in now is hitting the contract at its peak, but I think the rally has only just begun. As long as Kerry doesn’t blow the debates, or do anything else to defeat himself in the coming weeks, New Jersey will remain a dead heat up to Election Day.
The point of this is not necessarily to bet on which candidate actually wins New Jersey, but to anticipate future rises in the contract price. Who wins New Jersey only matters if the intention is to hold futures positions until November 3. A continuing dead heat, coupled with increasing coverage in other media outlets (witness the Times’ follow-up article on the Edwards visit in Wednesday’s edition, as well as James Ridgeway’s two cents in the Village Voice) should spark a rash of intra-day trading on November 2 which can only drive the price up further, if it doesn’t happen before then. If, come dinnertime on November 2, it looks like Bush is going to win New Jersey, then obviously the prudent thing to do would be to hold the contracts to the finish. Otherwise, they can be sold for a profit at any markup of the trader’s choosing.
On September 22, I bought 50 contracts on Bush to win New Jersey at an average price of 28, and on September 28, I bought 10 more at 31.4. The transaction fee is $0.04 per contract. So my total cost basis for this trade is (50*$2.80) + (10*$3.14) + (60*$0.04)= $173.80. Assuming that I hold this contract through the end of Election Day, I will either lose my entire $173.80 or make a net profit of $426.20.
In the next column, The Capitol Trader considers some arbitrage opportunities in Ohio and New England.
