I came back thinking again about this and I really struggle to see how it can be a great trade.
Your theory as far as I understood it is that this is a sort of one year option betting on liquidity constraint of the traders on polymarket.
I say option in the sense that you are burning through something to hold a right. In option theory that's called theta : the derivative of the option value to time. If you are long the option your theta is negative and you are losing money just by holding the right. In this case the holder of the yes is short theta (yeah the term is unlogicaly overloaded) in the sense that as the year progresses the annualised earning from the holder of no is better and better. If you can buy a no in december for .97 you're making a great trade because you would be earning (100/97)% for a month which is 44% annualized.
So on a first order rationality (just considering it as a loan) the value would be decreasing until then with the equation linking the value of the yes so that it equates the yield you can lock with a same expiration TBill. (It should rationaly be more - as people have pointed out - because you hold a more important counterparty risk and have liquidity problems).
As of now a 1 year TBill is about 4.0% annualized which is really more than what a current 97.3 yes for 9 months holding would pay you (3.6%).
So as of now you might say : ah the holder of the no should have better opportunities (tbills are more liquid and have better liquidity) eleswhere so they should be selling their no (thus rising the yes) and buying tbills instead. Realistically obviously a change of .4% annualized on 10k is 40$ so not worth the hassle (and you could actually not get the full 10k out at the same yield because of liquidity).
This is the baseline I would take to think about the time value of money here. And according to this model the time value of money would be directly influenced by the interest rates of treasuries with another effect accounting for the people having put some money here to wait.
The first effect if you wanted to trade it you should rationnaly just buy (leveraged) yield spreads and stuff like that.
If you want to bet on the other effect I struggle to see what is your edge ? It was probably not a good rational choice to put money into this even at 4% earlier this year. So you are betting that their behaviour is gonna be ah now I can trade other stuffs let me remove these no. But what is your expected payoff from this effect and what makes you confident this payoff is positive ?
In summary of this trade :
Would be happy to discuss as it is very possible (20/30%) I have made an understanding mistake somewhere as my knowledge of prediction market and their payoff is very weak.
Thanks to Jesse Richardson for discussion.
Polymarket asks: will Jesus Christ return in 2025?
In the three days since the market opened, traders have wagered over $100,000 on this question. The market traded as high as 5%, and is now stably trading at 3%. Right now, if you wanted to, you could place a bet that Jesus Christ will not return this year, and earn over $13,000 if you're right.
There are two mysteries here: an easy one, and a harder one.
The easy mystery is: if people are willing to bet $13,000 on "Yes", why isn't anyone taking them up?
The answer is that, if you wanted to do that, you'd have to put down over $1 million of your own money, locking it up inside Polymarket through the end of the year. At the end of that year, you'd get 1% returns on your investment. And you can do so much better on the stock market, or even in U.S. treasury bonds.
So that's why no one is buying the market down to 1%. But the real mystery is: why is anyone participating in the market on the "Yes" side? Like, who is betting that Jesus will return this year, and why?
Here are a few answers I came up with:
But none of these hypotheses ring true to me:
So I asked my friend Jesse, who trades on Polymarket, and he had a pretty interesting theory:
In other words: right now, there's not much interesting stuff happening on Polymarket. People are spending a lot of money betting on sports, but not much else. But at some point in 2025, other markets will get a lot of attention. The New York mayoral election is happening this year. Pope Francis is in poor health, so there may be a new pope this year. God forbid China invade Taiwan, but such an invasion would result in many interesting markets. Right now, all these markets have mere single-digit millions of dollars in trading volume, but that could very easily change.
And if it changes, some of the people betting No on Christ's return will want to unlock that money -- that is, sell their "No" shares -- so that they can use it to bet on other markets. If enough people want to sell their "No" shares, the "Yes" holders may be able to sell out at an elevated price, like 6%, potentially getting a 2x return on their investment!
The Time Value of Money hypothesis posits that the Yes bettors are more sophisticated than they look. In finance, time value of money is the idea that a dollar today is worth more than a dollar tomorrow, because you can do things with that dollar, such as making bets. The Yes traders are betting that the time value of Polymarket cash will go up unexpectedly: that other traders will be short on cash to place bets with, and will at some point be willing to pay a premium to free up the cash that they spent betting against Jesus.
Has this galaxy-brained trade ever gone well? Yes! In late October of last year -- a week before the election -- Kamala Harris was trading around 0.3% in safe red states like Kentucky, while Donald Trump was trading around 0.3% in safe blue states like Massachusetts. On election day, these prices skyrocketed to about 1.5%, because "No" bettors desperately needed cash to place other bets on the election. Traders who bought "Yes" for 0.3% in late October and sold at 1.5% on election day made a 5x profit! This means that even though Harris only had a 0.1% chance[2] of winning Kentucky, the "correct" price for the Kentucky market to trade at was more like 1.5%.
This means that the Jesus Christ market is quite interesting! You could make it even more interesting by replacing it with "This Market Will Resolve No At The End Of 2025": then it would be purely a market on how much Polymarket traders will want money later in the year.[3] As long as there is disagreement about the future time value of Polymarket cash, there will be trades, and then trading price will be above zero. The more that traders expect to want cash later in the year, the higher the market will trade.
(If Polymarket cash were completely fungible with regular cash, you'd expect the Jesus market to reflect the overall interest rate of the economy. In practice, though, getting money into Polymarket is kind of annoying (you need crypto) and illegal for Americans. Plus, it takes a few days, and trade opportunities often evaporate in a matter of minutes or hours! And that's not to mention the regulatory uncertainty: maybe the US government will freeze Polymarket's assets and traders won't be able to get their money out?)
What kinds of years see a high time value of Polymarket cash? Election years. As late as June, Polymarket had Democrats with a 6.5% chance of winning Kentucky (and this was typical of the safe states), even though the actual probability was more like 1%.[4] This means that traders were forgoing a relatively safe 16% annualized return, just so that they could have cash now to make other bets with! If there had been a "will Christ return in 2024" market, I bet it would have traded higher than 3% around this time last year: maybe more like 5%.
And so, you heard it here first: Jesus Christ will probably return in an election year (at least if you believe the prediction markets)!
I’ve seen some pretty mispriced markets. At one point in 2019, PredictIt had Andrew Yang at 16% to win the Democratic presidential primary. And in 2020, Donald Trump was about 16% to become president even after he had lost the election. But the sorts of people who bet on prediction markets are not the sorts of fundamentalist Christians who think that Jesus Christ has a high chance of returning this year.
So says Nate Silver’s model in late October, and I agree.
Jesse points out that “the Jesus market should trade really low” is potentially a really good metric for evaluating the efficiency of prediction markets, and that prediction markets should aim to structure their mechanisms in a way that makes markets like this one trade really low. Manifold Markets has experimented with giving out loans for basically this purpose, although this seems much safer to do with fake money than real money.
After the election, Polymarket changed the labels from “Democrat” and “Republican” to “Harris” and “Trump”, but the labels said “Democrat” and “Republican” at the time.