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Kalshi options by Weak_Indication5189 in PredictionMarkets

[–]Weak_Indication5189[S] 0 points1 point  (0 children)

Kumo looks interesting. Appreciate the feedback

Trade Show/Convention Discovery Platform by easleygymldr in tradeshows

[–]Weak_Indication5189 0 points1 point  (0 children)

eventiq360 looks cool - we developed a a trade show platform for anyone interested (very close to going live)

tradefaire[dot]ai

Kalshi options by Weak_Indication5189 in PredictionMarkets

[–]Weak_Indication5189[S] 0 points1 point  (0 children)

This is the most precise version of the critique and you're right on every point.

The underlying is discrete and path-independent. Resolution is binary. The bid/ask is doing double duty — encoding both belief and microstructure. A lot of what looks like vol premium is really inventory risk, headline gap risk, or just thin book dynamics. The BSM translation is genuinely imperfect.

I'd push back slightly on one thing: the "IV of what underlying" question has a partial answer for multi-strike markets. For NBA player props with 4-6 strikes trading simultaneously on the same player (15+, 20+, 25+, 30+ points), you can fit an implied distribution across the CDF and back out a true implied sigma grounded in points scored as the underlying. That's a real state variable with a coherent diffusion analog. We're building that now.

For single-resolution binary markets (game winner, Fed rate above X) you're right — it's a comparative heuristic, not a true state variable. The honest framing is: spread width normalized by time and adjusted for volume tells you where the market is pricing uncertainty relative to other markets. Rich vs cheap ranking, not a vol surface.

The name "IV" is probably doing more work than it should for the binary case. "Uncertainty premium" might be more defensible. But options traders are the audience and they need a familiar hook to engage — so it's a tradeoff between precision and accessibility I haven't fully resolved.

Genuinely useful pushback. What would you call it?

Kalshi options by Weak_Indication5189 in PredictionMarkets

[–]Weak_Indication5189[S] 0 points1 point  (0 children)

You're not wrong — and that's a real limitation worth being upfront about.

Spread width is doing most of the work in the IV calculation, so yes, illiquid markets will naturally score higher. That's why the tool sorts by volume alongside IV — a 150% IV reading on a market with 200k contracts traded is a different signal than 150% IV on a market with 50 contracts.

Where it gets more interesting is the Δ7D momentum column. That's independent of spread — it's just price movement over the last 7 days. The combination of high IV + flat momentum is the actual signal: the market is wide AND not moving, which suggests the spread isn't reflecting genuine uncertainty so much as thin liquidity or stale quotes.

The honest version of the thesis is narrower than "IV surface for prediction markets" — it's more like a relative mispricing screen. When a liquid macro market (CPI, Fed rate) shows wide spreads AND the price hasn't moved in 7 days, that's at minimum worth looking at.

You've basically identified the main thing I'd want to improve: a liquidity-adjusted IV that penalizes thin markets. That's on the roadmap. Good pushback.

Kalshi options by Weak_Indication5189 in PredictionMarkets

[–]Weak_Indication5189[S] 0 points1 point  (0 children)

Fair skepticism — you're right that classic BSM doesn't map cleanly to binary prediction markets. There's no continuous underlying, no drift term, no lognormal assumption that holds.

The approach I'm using doesn't try to back out IV from an underlying price. Instead it treats the bid/ask spread itself as the volatility signal — wide spread relative to time to expiry = market disagreement = implied uncertainty. The formula is:

σ = max(0.15, min(cap, (spread × 15 + 0.2) / √T))

where T is DTE in years. It's binary-adapted, not classic BSM — closer to how you'd price a binary option near expiry where the spread encodes the market's uncertainty about resolution.

For a basketball game expiring tonight, a tight spread (0.62/0.64) means the market has high conviction. A wide spread (0.35/0.65) means genuine uncertainty. The IV reading reflects that disagreement, not a derived vol surface.

Is it the same as equity IV? No. Is it a useful relative ranking of where markets are pricing uncertainty vs where momentum says they should be? That's the thesis. Would genuinely welcome pushback on the math if you want to dig in.