Yes/No Shares
Definition
Yes/No Shares are complementary contracts in a binary market. Yes + No prices ≈ $1 (ignoring fees), reflecting complementary probabilities.
How They Work
In a binary prediction market, two types of shares exist:
- Yes Shares: Pay $1 if the event occurs, $0 otherwise
- No Shares: Pay $1 if the event does NOT occur, $0 otherwise
Pricing Relationship
The prices of Yes and No shares are inversely related:
Yes Price + No Price ≈ $1.00 (ignoring fees and spreads)
For example:
- If Yes = $0.65, then No ≈ $0.35
- If Yes = $0.20, then No ≈ $0.80
Trading Strategy
- Buy Yes when you believe the true probability exceeds the Yes price
- Buy No when you believe the true probability is less than (1 − Yes price)
Example
Market: "Will it rain in New York on June 15?"
- Yes share price: $0.30 (30% probability)
- No share price: $0.70 (70% probability)
If you believe there's a 50% chance of rain, the Yes shares are underpriced and represent good value.