Binary-Market Hedging Arbitrage with Paired Polymarket Contracts
Summary
The document describes a proposed arbitrage method for binary prediction contracts. Since complementary Yes/No or Up/Down shares settle so that one pays out, the strategy looks for moments when the combined purchase price is below the payout. It attributes these windows to temporary pricing imbalances during sharp market moves, rather than forecasting direction.
The original approach buys one side after a price drop and waits for the other to become cheap enough. The revised approach submits limit orders for both legs concurrently, with the second price derived from a target combined cost. The article adds safeguards for an unfilled second leg, settlement timing, order confirmation delays, and post-settlement redemption. A live example reports a pair with total cost below the target, but this is a single illustration, not a performance record. The method can idle in calm markets, leave the trader exposed to one leg, and depends on fills, fees, latency, and carefully chosen thresholds; the proposed improvements are not shown to eliminate those risks.
Key ideas
- Complementary binary contracts can create a locked payout when their combined purchase cost is below settlement value.
- The strategy seeks temporary price dislocations during sharp moves instead of predicting market direction.
- Submitting both limit orders together aims to capture a target cost before prices converge.
- An unfilled leg creates directional exposure, so the method includes exit rules and special handling near settlement.
- Order latency, redemption, fees, and market conditions can affect execution and realized results.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.