Analysis of Reddit-Discussed Event Contract Arbitrage Strategy Outperforming Complex ML Models

The strategy, discussed in a Reddit post ([1]), leverages gaps between event contract odds and derivatives (e.g., fed funds futures) using a 5%+ gap threshold and closes positions 24h before events. It outperformed the poster’s ML models (31% vs.14% returns since October) due to market inefficiencies from non-overlapping participant pools ([1], [3]). Event contracts are regulated as derivatives by the CFTC ([2]), providing regulatory context but also ambiguity.

1. Simple arbitrage strategies can outperform complex ML models in niche, inefficient markets ([1]).
2. Event contract arbitrage opportunities are fragile due to low liquidity and fragmented participant bases ([4]).
3. Regulatory ambiguity around event contracts adds unquantified risk ([2]).

• Risks
  : Execution risk ([5]), regulatory risk ([2]), rapid obsolescence as more traders adopt the strategy ([5]).
• Opportunities
  : Short-term arbitrage in event contracts, but the window is likely limited (community predicts obsolescence by November 24, 2025) ([1]).

The strategy’s performance highlights niche market inefficiencies, but it carries significant risks. Event contracts are CFTC-regulated ([2]), and the strategy’s sustainability depends on maintaining gaps between event contracts and derivatives. No investment recommendations are provided; this summary is for informational purposes only.