Fed decision in December - Polymarket arbitrage
Disclaimer All content and information on this website (the "Site") is for informational and educational purposes only, does not constitute financial, investment, legal, or tax advice, and is not an offer, solicitation, or recommendation to buy or sell any security, futures contract, or financial instrument. No Investment Advice The author of this Site is not a financial advisor. The information presented is not intended to be and does not constitute personalized investment advice. Any discussion of securities or markets is for illustrative purposes only. You are solely responsible for your own investment decisions. You should not make any financial, investment, legal, or tax decision based on any of the information provided on this Site without first consulting a qualified and licensed professional and conducting your own research and due diligence. Risk of Loss All trading and investing involve a substantial risk of loss. The assets and strategies discussed on this Site may not be suitable for all investors. You may lose all or more than your initial investment. Past performance is not indicative of future results. No Warranties The information on this Site is provided on an "as is" basis. We make no warranties or representations, express or implied, as to the accuracy, completeness, or timeliness of the information. We are not liable for any errors, omissions, or any losses, injuries, or damages arising from your use of this information. Any forward-looking statements or market predictions are speculative by nature and are not guarantees. Disclosure The author may hold, buy, or sell positions in any assets, securities, or financial instruments discussed on this Site at any time and without notice. Personal Opinions All views and opinions expressed herein are the author's own and do not represent the opinions of any entity whatsoever with which the author has been, is now, or will be affiliated.
1. The Opportunity
We have identified a clear mispricing between two Polymarket contracts that are betting on the exact same event. This allows us to "buy low and sell high" on the same outcome, locking in a small, guaranteed profit, regardless of what the Fed does.
This is a classic arbitrage opportunity.
2. The Two Bets
Both bets are about the Fed's December 2025 meeting, and we know that two 0.25% (25bps) cuts have already happened this year.
Bet 1 (The "Expensive" Bet):
Market: "Will there be a 25bps decrease in the next meeting?"
Price: 69 cents for "Yes"
What it really means: This bet wins if and only if the Fed cuts by exactly 0.25%. (If they cut by 0.50%, this bet would lose).
Bet 2 (The "Cheap" Bet):
Market: "Will there be exactly 3 cuts... by the Fed's December meeting?"
Price: 65 cents for "Yes"
What it really means: Since 2 cuts have already happened, this bet wins if and only if the Fed cuts by exactly 0.25% in December (making it "exactly 3 cuts" total).
Conclusion: Both markets are pricing the exact same outcome: a single 0.25% cut in December. One market is selling this event for 69 cents, and the other is selling it for 65 cents.
3. The Trade
To lock in the profit, we sell the expensive one and buy the cheap one.
SELL "Yes" on Bet 1 ("25bps decrease") @ 69 cents.
BUY "Yes" on Bet 2 ("Exactly 3 cuts") @ 65 cents.
We must place these trades for the same number of shares (e.g., 100 shares of each) at the same time.
4. The Payoff (Guaranteed Profit)
By making this trade, we immediately receive 69 cents (from our sale) and spend 65 cents (on our purchase). We are instantly up 4 cents in cash.
Here is how we lock in that 4-cent profit, no matter what happens in December:
Scenario A: The Fed cuts by exactly 0.25%.
Our SELL bet (Bet 1) resolves to $1. We sold at 69c, so we lose 31 cents.
Our BUY bet (Bet 2) resolves to $1. We bought at 65c, so we make 35 cents.
Total Profit: +35 cents (gain) - 31 cents (loss) = +4 cents
Scenario B: The Fed does anything else (no cut, a 0.50% cut, etc.).
Our SELL bet (Bet 1) resolves to $0. We sold at 69c, so we make 69 cents.
Our BUY bet (Bet 2) resolves to $0. We bought at 65c, so we lose 65 cents.
Total Profit: +69 cents (gain) - 65 cents (loss) = +4 cents
In all cases, we lock in a 4-cent profit per share.
5. Risks & Cautions
Price Movement (Slippage): The prices may move while we are placing the orders. We must be able to buy at 65c and sell at 69c. If the prices move and the gap closes, the opportunity is gone.
Rule Interpretation: This entire strategy relies on our reading of the rules: that "a 25bps decrease" (Bet 1) means exactly
edit: as of 2025-10-30 the spread has now collapsed, will keep an eye out
Comments
Post a Comment