Hey all,
So I’ve bet money on the outcome of political events at predictit.com in the past (usually winning… not 100% of the time, though!:rolleyes:) But I can’t convince them to open a market on the exact month and year of the start of the next recession. I’ve started forums, I’ve sent them suggestions… no luck. It can’t be because it’s too far in the future (May 2019), because they do take bets for things like who’s going to be the nominee for the 2020 election and events even further out. Maybe it’s just because they concentrate so much on strictly political events. My question is: is there anywhere else that will take a bet like this? It seems like there should be somewhere else reliable/trustworthy that would do it. Ideas? Suggestions?
How do you determine, in a clear way that everybody can agree upon, the exact date of a recession?
It’s commonly defined to be negative growth for two quarters.
You could use put options or other options strategies using index funds that track the market (S&P 500, DOW, Russell, Etc). The expiration date of the option would be the date you “bet” on. Betting on the future price of a stock or fund is essentially what the whole options market is. Just be careful, getting into the riskier option trades can be big trouble if the price goes the wrong way.
Yes, and it’s called the stock market. Buying a put is betting that the underlying equity will cost less on a specified date in the future.
What Tommy Bahama said.
Moved to the Game Room.
Colibri
General Questions Moderator
That’s pretty far from an explicit bet on recession, though. It kind of depends on market perceptions on what’s driving stock valuations at the moment. In current conditions, eurodollar futures might have better correlation, they are pricing in a lot of tightening over the next 18 months that will not happen if the economy stumbles.
The CME did once consider starting an inflation futures market a few years ago, but it never happened. And you can contrive synthetic bets on inflation numbers using TIPS vs regular treasuries. But don’t think there has ever been an instrument that was priced explicitly off growth numbers.
This is what I was going to suggest, except that you won’t get “exact” date. Specifically you may want a (group of) vertical spread(s) on the S&P 500 index. I’m not certain, but I think some brokers will allow you to write a vertical spread even when your “rating” is inadequate to sell the component option. For example (SPY is currently $278):
Sell 200 Put-September 280 $11.27 Proceeds $2254
Buy 300 Put-December 275 $12.08 Cost $3624
Sell 100 Put-January 275 $12.55 Proceeds $1255
For an initial outlay of only $115 (plus commissions) in this example, get almost $4500 profit if the index is at 280 late this coming September, and falls 10% by December 21.
IIUC, longer-term options are provided for only five of the 12 months. :eek: Hence the December-January adjacency, while no October or November option is available yet? 
Disclaimer: I’ve absolutely no idea what I’m talking about! :eek:
One should be able to fashion a better proxy than S&P 500 for recession, but do you really think interest and/or inflation rates, by themselves, would be better? I’d think the spectrum of possible futures is much broader than that would imply.