12 ms·

Why I bet £900k on the Scottish referendum

83 points by jjp 12y ago

Tycho 12y ago
I would like to know how much Deutsche Bank had bet on the referendum, or rather on Sterling. They released a research report saying the case for No was overwhelming, a week before the vote. Sterling had just been rocked by the one poll that put Yes ahead (after a series of tightening polls). Implied volatility jumped up. Had they neglected to hedge their currency exposure?
- atmosx 12y ago
  NOTE: the difference was ~5% which means that once again financial crooks don't know nothing about the subject at hand. Why should they? In case they lose the bet, German taxpayer will pay. Business as usual.
  - icebraining 12y ago
    Uh, no, the difference was actually higher than 10%. http://en.wikipedia.org/wiki/Scottish_independence_referendum,_2014#Totals http://en.wikipedia.org/wiki/Scottish_independence_referendu...
goodcanadian 12y ago
Well, I certainly don't have that much money to bet, but I wasn't surprised by the results. Just because a couple of late polls suggested that "Yes" was ahead doesn't mean much when the bulk of the polls still showed "No" in the lead. You have to understand that the polls only sample a (relatively) small number of people and therefore, when taken individually, have large margins of error that are sadly rarely reported. You have to consider all of the polls together as a set.
- mdda 12y ago
  If I were the UK government, I would have paid for a last minute "YES" poll : Just to jolt the NO voters into going to vote (because otherwise, they may have not bothered, seeing that the polls were all pointing their way anyway).
yeldarb 12y ago
Where would one even go to place such a bet? Also, how can you assess the counter-party risk here? You're letting someone hold the equivalent of $1.4MM for some number of weeks/months; there has to be some risk that they will default on what is effectively a loan. Can you purchase an insurance policy on something like this?
- ascorbic 12y ago
  William Hill is listed on the London Stock Exchange, with a market cap of over £4bn. I think they're good for it.
- deleted 12y ago
  [deleted]
- dublinben 12y ago
  >Where would one even go to place such a bet? William Hill, one of the largest bookmakers in the UK. It's mentioned in the article.
- notahacker 12y ago
  In this case they went to William Hill, an 80 year-old publicly listed and regulated company that made >£200M in profit off £1.5bn revenue last year. The counterparty risk was negligible, especially compared with the rather high risk the pollsters all made systematic errors in their surveys (it's not particularly difficult to imagine a scenario in which people with a stated intention to vote for independence turned out to be much more likely to actually bother to vote; actually the main reason why I didn't try the lower risk, lower return version of this bet and place all my liquid funds in a FTSE100 index fund or ETF the day before)
- goatforce5 12y ago
  UK bookmakers will take bets on pretty much anything. Here's a list of some of the 'novelty' bets going at the moment: http://www.oddschecker.com/novelty http://www.oddschecker.com/novelty Maybe you have a time travelling machine and you know that aliens will show themselves in 2016? Quick! Place a bet! http://www.paddypower.com/bet/novelty-betting/novelty-bets/alien-existence http://www.paddypower.com/bet/novelty-betting/novelty-bets/a... But it gets more specific than that. Here's someone who had a bet accepted that his 9 year old son would end up playing for Manchester United football club: http://www.dailymail.co.uk/news/article-2209493/Ryan-Tunnicliffes-father-wins-10-000-placing-bet-son-play-team.html http://www.dailymail.co.uk/news/article-2209493/Ryan-Tunnicl...
bryanlarsen 12y ago
Do any businesses regularly use betting markets such as this for hedging? If so, that could have certainly moved the odds to give great odds to a "no" bet. Some businesses could have been severely negatively impacted by a yes vote, so they can hedge against that risk by betting on 'yes'. Is that sort of thing done? Is it legal? Or do they just use different markets for this sort of thing? Buying or selling futures contracts on the pound could be highly correlated with the vote outcome.
- TheBiv 12y ago
  As he alluded to in the article, the bookies were not prepared for the large sum of money that he wanted to wager - in total. These sort of prop bets typically don't allow for such a larger amount to be wagered.
  - at-fates-hands 12y ago
    Not sure if he knew or not, but with so much juice on a "no" vote, he would've single handily moved the numbers too much in his favor. The art of being a good bookie is making sure you have action on both sides of a bet - that way you never lose. By taking that much heat on an obscure bet would cause a lot of people to either move all of their money to one side, or everybody would be spooked and cancel all their bets. If the bookie were to take that bet like he wanted to, it would have put him out of business either way.
Someone1234 12y ago
So just to be clear, if he wins he makes 22.22~% profit (200K), if he loses then he's out 900K (100% loss). While that is a great ROV (relative to both interest and or the stock market), it does seem like the stake was too high relative to the reward. Could they not have taken that money, purchased a couple of homes (e.g. 2x 275k), renovated them up to modern standards (e.g. 2x 60-85K), and then resold them? A lot of people do that and it has a very high ROV also (as people get into bidding wars more easily on "ready to move into" property Vs. ones in need of renovation). Plus with the property thing you always ultimately have the property/land which can be sold. So the risk isn't really 100% of the properties' value, it is at most the difference between purchase price and raw land value. Even in the 2008 recession a lot of people in the property game did "alright."
- TheBiv 12y ago
  Completely valid points, and I have to imagine that the author would agree with you. I can't help but to imagine the novelty of the wager and the amount he was willing to risk, played a large part in him ultimately following through.
- idlewords 12y ago
  You're assuming they have the money in hand long enough to invest it in real estate, and the time, masochism and expertise to do two renovations.
- easytiger 12y ago
  I think the analysis was a cover. Some m months ago in the polls a yes vote was universally preposterous. In reality it was quite close.
- bshimmin 12y ago
  Well, one option involves the hassle of renovating two homes (have you ever watched Grand Designs? The windows never fit...), the other involves walking into your nearest bookies. Perhaps if you have that sort of money to throw around you might like to take the quick and easy option.
- Tycho 12y ago
jusben1369 12y ago
To all the UK HN readers here. I grew up in Australia and live in the US. When I visit the UK I'm staggered by just how much you can bet on everything As I go home I've noticed it is more prevalent there now too then when I grew up there. Do people in the UK discuss how mad the UK are about betting? Or do they not think they are particularly? Is there any sort of active discussion in terms of how healthy it is? I'm not for outlawing gambling or drinking or prostitution but to think that there aren't a meaningful % of addicts for whom this easy access destroys their life is also naive. Does that come into play at all?
- dublinben 12y ago
  The number of people gambling in the US and the UK are fairly similar, both somewhere between 60 and 70 percent. Government lotteries are the most popular form in both countries.
  - k-mcgrady 12y ago
    Isn't gambling extremely limited in most of the US? If you take away lotteries (which I personally wouldn't consider gambling) I wonder what the figures are.
    - seanflyon 12y ago
      Why do you consider lotteries not to be gambling? In a literal sense they are clearly gambling.
      - k-mcgrady 12y ago
        True but they are very different to betting on sports, events etc. For the lottery you hand over some money, get some random numbers and you might win (same idea with scratch cards). If you bet on say, the result of a football game, you are given odds, you can look at the statistics of both teams, and you can get a better idea of the risk. You can actually use your brain a little. Also, I think while a lot of kids would be told that gambling is bad/dangerous, and they shouldn't do it, their parents likely play the lottery and let the kids pick the numbers.
deleted 12y ago
[deleted]
foobarqux 12y ago
The author focuses on why "No" would probably win but the determining factor should have been whether his assessment of the actual odds were better than the bookmaker's implied odds.
- Fuzzwah 12y ago
  Knowing how well his bankroll can stand up to the high variance would be nice.
  - foobarqux 12y ago
    Yes, risk preference is the other important factor.
    - junto 12y ago
      I had to transfer a considerable sum of GBP to EUR close to the vote. The bookies odds were a very good indication (2/7) of how many people had bet on a "No" vote. Basically the bookies odds are based on covering their backs ( and they are good at it). They don't often get it wrong. When lots of Scottish people vote on "No" then it is a damn better signal than pollsters in the street. Since the expected upside of a "No" was low (it went from ~1.258 to ~1.271 after the results came in), but the projected downside of a "Yes" was high (estimated at ~10% drop due to the 2 years of uncertainty in the markets - Scottish independence was scheduled for 2016), I decided to hedge on similar odds with the currency transfer. I'm happy with the decision. I could have got more EUR if I had waited, but that's what hedging is all about right?
- skizm 12y ago
  The bet was close to even odds. Also since this was a one time bet, with the downside of (probably) him never betting again, even if it payed out 10x the money he bet, you would still want to be pretty sure you were right -- and not just "making the right bet" since the downsides far outweigh the upsides. This isn't "on a long enough timeline" bet, it is a "I need to be correct this time" bet.
deleted 12y ago
[deleted]
otoburb 12y ago
I don't mean to be pedantic, but it should be the "Scottish" referendum, and not "Scotish". If an admin could add the second "t" it would be greatly appreciated, at least to match the BBC article's title.
- dang 12y ago
  Ack! How did we miss that? Thanks!
JonnieCache 12y ago
Make sure to listen to the audio clip, the button kinda blends in. They discusses some things which aren't in the text.
jedc 12y ago
Weird, William Hill's corporate cheques are drawn from the very same bank branch where I have my account.
swang 12y ago
Some math on this assuming the article is correct. He was offered 5:4 odds so the juice was 2.8% given what he should've won vs what he got. The 5:4 odds mean he had to be at least 44% (+2.8%) confident just to break even, moreso to make a profit.

83 points by jjp 12y ago

Tycho 12y ago

I would like to know how much Deutsche Bank had bet on the referendum, or rather on Sterling. They released a research report saying the case for No was overwhelming, a week before the vote. Sterling had just been rocked by the one poll that put Yes ahead (after a series of tightening polls). Implied volatility jumped up. Had they neglected to hedge their currency exposure?

atmosx 12y ago
NOTE: the difference was ~5% which means that once again financial crooks don't know nothing about the subject at hand. Why should they? In case they lose the bet, German taxpayer will pay. Business as usual.
- icebraining 12y ago
  Uh, no, the difference was actually higher than 10%. http://en.wikipedia.org/wiki/Scottish_independence_referendum,_2014#Totals http://en.wikipedia.org/wiki/Scottish_independence_referendu...

goodcanadian 12y ago

Well, I certainly don't have that much money to bet, but I wasn't surprised by the results. Just because a couple of late polls suggested that "Yes" was ahead doesn't mean much when the bulk of the polls still showed "No" in the lead. You have to understand that the polls only sample a (relatively) small number of people and therefore, when taken individually, have large margins of error that are sadly rarely reported. You have to consider all of the polls together as a set.

mdda 12y ago
If I were the UK government, I would have paid for a last minute "YES" poll : Just to jolt the NO voters into going to vote (because otherwise, they may have not bothered, seeing that the polls were all pointing their way anyway).

yeldarb 12y ago

Where would one even go to place such a bet? Also, how can you assess the counter-party risk here? You're letting someone hold the equivalent of $1.4MM for some number of weeks/months; there has to be some risk that they will default on what is effectively a loan. Can you purchase an insurance policy on something like this?

ascorbic 12y ago
William Hill is listed on the London Stock Exchange, with a market cap of over £4bn. I think they're good for it.
deleted 12y ago
[deleted]
dublinben 12y ago
>Where would one even go to place such a bet? William Hill, one of the largest bookmakers in the UK. It's mentioned in the article.
notahacker 12y ago
In this case they went to William Hill, an 80 year-old publicly listed and regulated company that made >£200M in profit off £1.5bn revenue last year. The counterparty risk was negligible, especially compared with the rather high risk the pollsters all made systematic errors in their surveys (it's not particularly difficult to imagine a scenario in which people with a stated intention to vote for independence turned out to be much more likely to actually bother to vote; actually the main reason why I didn't try the lower risk, lower return version of this bet and place all my liquid funds in a FTSE100 index fund or ETF the day before)
goatforce5 12y ago
UK bookmakers will take bets on pretty much anything. Here's a list of some of the 'novelty' bets going at the moment: http://www.oddschecker.com/novelty http://www.oddschecker.com/novelty Maybe you have a time travelling machine and you know that aliens will show themselves in 2016? Quick! Place a bet! http://www.paddypower.com/bet/novelty-betting/novelty-bets/alien-existence http://www.paddypower.com/bet/novelty-betting/novelty-bets/a... But it gets more specific than that. Here's someone who had a bet accepted that his 9 year old son would end up playing for Manchester United football club: http://www.dailymail.co.uk/news/article-2209493/Ryan-Tunnicliffes-father-wins-10-000-placing-bet-son-play-team.html http://www.dailymail.co.uk/news/article-2209493/Ryan-Tunnicl...

bryanlarsen 12y ago

Do any businesses regularly use betting markets such as this for hedging? If so, that could have certainly moved the odds to give great odds to a "no" bet. Some businesses could have been severely negatively impacted by a yes vote, so they can hedge against that risk by betting on 'yes'. Is that sort of thing done? Is it legal? Or do they just use different markets for this sort of thing? Buying or selling futures contracts on the pound could be highly correlated with the vote outcome.

TheBiv 12y ago
As he alluded to in the article, the bookies were not prepared for the large sum of money that he wanted to wager - in total. These sort of prop bets typically don't allow for such a larger amount to be wagered.
- at-fates-hands 12y ago
  Not sure if he knew or not, but with so much juice on a "no" vote, he would've single handily moved the numbers too much in his favor. The art of being a good bookie is making sure you have action on both sides of a bet - that way you never lose. By taking that much heat on an obscure bet would cause a lot of people to either move all of their money to one side, or everybody would be spooked and cancel all their bets. If the bookie were to take that bet like he wanted to, it would have put him out of business either way.

Someone1234 12y ago

So just to be clear, if he wins he makes 22.22~% profit (200K), if he loses then he's out 900K (100% loss). While that is a great ROV (relative to both interest and or the stock market), it does seem like the stake was too high relative to the reward. Could they not have taken that money, purchased a couple of homes (e.g. 2x 275k), renovated them up to modern standards (e.g. 2x 60-85K), and then resold them? A lot of people do that and it has a very high ROV also (as people get into bidding wars more easily on "ready to move into" property Vs. ones in need of renovation). Plus with the property thing you always ultimately have the property/land which can be sold. So the risk isn't really 100% of the properties' value, it is at most the difference between purchase price and raw land value. Even in the 2008 recession a lot of people in the property game did "alright."

TheBiv 12y ago
Completely valid points, and I have to imagine that the author would agree with you. I can't help but to imagine the novelty of the wager and the amount he was willing to risk, played a large part in him ultimately following through.
idlewords 12y ago
You're assuming they have the money in hand long enough to invest it in real estate, and the time, masochism and expertise to do two renovations.
easytiger 12y ago
I think the analysis was a cover. Some m months ago in the polls a yes vote was universally preposterous. In reality it was quite close.
bshimmin 12y ago
Well, one option involves the hassle of renovating two homes (have you ever watched Grand Designs? The windows never fit...), the other involves walking into your nearest bookies. Perhaps if you have that sort of money to throw around you might like to take the quick and easy option.
Tycho 12y ago

jusben1369 12y ago

To all the UK HN readers here. I grew up in Australia and live in the US. When I visit the UK I'm staggered by just how much you can bet on everything As I go home I've noticed it is more prevalent there now too then when I grew up there. Do people in the UK discuss how mad the UK are about betting? Or do they not think they are particularly? Is there any sort of active discussion in terms of how healthy it is? I'm not for outlawing gambling or drinking or prostitution but to think that there aren't a meaningful % of addicts for whom this easy access destroys their life is also naive. Does that come into play at all?

dublinben 12y ago
The number of people gambling in the US and the UK are fairly similar, both somewhere between 60 and 70 percent. Government lotteries are the most popular form in both countries.
- k-mcgrady 12y ago
  Isn't gambling extremely limited in most of the US? If you take away lotteries (which I personally wouldn't consider gambling) I wonder what the figures are.
  - seanflyon 12y ago
    Why do you consider lotteries not to be gambling? In a literal sense they are clearly gambling.
    - k-mcgrady 12y ago
      True but they are very different to betting on sports, events etc. For the lottery you hand over some money, get some random numbers and you might win (same idea with scratch cards). If you bet on say, the result of a football game, you are given odds, you can look at the statistics of both teams, and you can get a better idea of the risk. You can actually use your brain a little. Also, I think while a lot of kids would be told that gambling is bad/dangerous, and they shouldn't do it, their parents likely play the lottery and let the kids pick the numbers.

deleted 12y ago

[deleted]

foobarqux 12y ago

The author focuses on why "No" would probably win but the determining factor should have been whether his assessment of the actual odds were better than the bookmaker's implied odds.

Fuzzwah 12y ago
Knowing how well his bankroll can stand up to the high variance would be nice.
- foobarqux 12y ago
  Yes, risk preference is the other important factor.
  - junto 12y ago
    I had to transfer a considerable sum of GBP to EUR close to the vote. The bookies odds were a very good indication (2/7) of how many people had bet on a "No" vote. Basically the bookies odds are based on covering their backs ( and they are good at it). They don't often get it wrong. When lots of Scottish people vote on "No" then it is a damn better signal than pollsters in the street. Since the expected upside of a "No" was low (it went from ~1.258 to ~1.271 after the results came in), but the projected downside of a "Yes" was high (estimated at ~10% drop due to the 2 years of uncertainty in the markets - Scottish independence was scheduled for 2016), I decided to hedge on similar odds with the currency transfer. I'm happy with the decision. I could have got more EUR if I had waited, but that's what hedging is all about right?
skizm 12y ago
The bet was close to even odds. Also since this was a one time bet, with the downside of (probably) him never betting again, even if it payed out 10x the money he bet, you would still want to be pretty sure you were right -- and not just "making the right bet" since the downsides far outweigh the upsides. This isn't "on a long enough timeline" bet, it is a "I need to be correct this time" bet.

deleted 12y ago

[deleted]

otoburb 12y ago

I don't mean to be pedantic, but it should be the "Scottish" referendum, and not "Scotish". If an admin could add the second "t" it would be greatly appreciated, at least to match the BBC article's title.

dang 12y ago
Ack! How did we miss that? Thanks!

JonnieCache 12y ago

Make sure to listen to the audio clip, the button kinda blends in. They discusses some things which aren't in the text.

jedc 12y ago

Weird, William Hill's corporate cheques are drawn from the very same bank branch where I have my account.

swang 12y ago

Some math on this assuming the article is correct. He was offered 5:4 odds so the juice was 2.8% given what he should've won vs what he got. The 5:4 odds mean he had to be at least 44% (+2.8%) confident just to break even, moreso to make a profit.