Kalshi Politics — Mispricing Audit
1. How this was researched
Mode: category-match. trading_events.category = 'Politics' matched 374 active markets closing before Oct 1, 2026 — no theme-search needed. Pipeline:
- Stage 1 filter — live top-of-book and 24h volume fetched from the Kalshi public API for all 374 tickers. Hard cuts: 24h volume < 1,500, bid-ask spread > 5¢, fully priced (bid ≥ 95¢ / ask ≤ 5¢), announcer-noise markets (the entire Truth Social post-count ladder, endorsement counts), and the 8 contracts already live in users' feeds from prior runs. Only 5 markets survived the strict screen — Politics is efficient this week. Five near-threshold markets (24h volume 500–1,500 but 1–2¢ spreads and 15k–84k open interest) were carried into Stage-2 diligence for the record, flagged that they cannot deploy capital under the volume rule.
- Stage 2 diligence — resolution rules pulled from the DB mirror; 14-day daily price history from
market_snapshots; live order books; primary-source news (CNN live coverage, CoinDesk, Brennan Center, Breaking Defense, National Archives public-law list, IMF PortWatch reporting). - Stage 2.5 resolver pricing — every probability below is a forecast of the named resolver's verdict at resolution time, with resolver risks deducted as explicit points (shown per pick).
- Stages 3–4 — rejects logged and shadow-tracked; conviction tiers set by defensibility (never by EV); sizes set by tier caps (HIGH ≤ $150, MEDIUM ≤ $70) and the 15%-per-cluster cap.
Bottom line: 3 picks, $368.89 deployed (36.9%), $631.11 held as cash. All three are NO-side favorites at 69–92¢ effective entry. Seven Stage-2 candidates were rejected and logged. No coin-flips, no tails, no LOW-tier capital — per v3.3.
2. Markets reviewed
| Ticker | Question | Bid/Ask (YES) | 24h vol | OI | Outcome of review |
|---|---|---|---|---|---|
| KXHORMUZNORM-26MAR17-B261001 | Hormuz 7-day avg transits >60 before Oct 1 (PortWatch) | 8 / 9 | 18,972 | 898,785 | PICK 1 — BUY NO @ 92¢ |
| KXCRYPTOSTRUCTURE-26JAN-OCT | Crypto market-structure bill law before Oct 1 | 9 / 10 | 4,711 | 149,216 | PICK 2 — BUY NO @ 91¢ |
| KXFISAEXTEND-26JUN-26OCT01 | FISA §702 reauth becomes law before Oct 1 | 31 / 33 | 2,440 | 22,062 | PICK 3 — BUY NO @ 69¢ |
| KXBILLSCOUNT-26AUG-0.0 | Exactly 0 bills become law in Aug 2026 | 88 / 91 | 12,624 | 17,554 | REJECT — thesis already priced (47→91 in 72h) |
| KXXIUSA-26JUL07-OCT01 | Xi Jinping visits the US before Oct 1 | 85 / 87 | 921 | 14,985 | REJECT — volume screen (would BUY YES) |
| KXCLARITYVOTE-26JUL-OCT01 | Senate recorded vote on CLARITY before Oct 1 | 88 / 89 | 657 | 39,212 | REJECT — volume screen |
| KXGOVTSHUTDOWN-26OCT01 | Government shut down at 10am ET Oct 1 | 15 / 16 | 1,007 | 84,044 | REJECT — volume screen + no edge |
| KXAPRPOTUS-26AUG21-38.9 | RCP approval in 38.8–39.0 band on Aug 21 | 22 / 23 | 1,782 | 5,016 | REJECT — no edge on a 0.3-pt poll band |
| KXNJGOLFVISITCOUNT-26AUG-3 | Exactly 3 Bedminster trips in Aug | 71 / 73 | 1,015 | 16,130 | REJECT — volume screen + schedule noise |
| KXEOWEEK-26AUG22-1 | >1 executive order Aug 16–22 | 37 / 38 | 792 | 605 | REJECT — volume screen + coin-flip band |
3. Picks — detail and thesis
Pick 1 — KXHORMUZNORM-26MAR17-B261001 · BUY NO @ 0.92 · HIGH CONVICTION
"Will the 7-day moving average of transit calls through the Strait of Hormuz as reported by the IMF PortWatch be above 60 before October 1, 2026?"
Market implies YES 8–9% → NO ≈ 91–92%
My probability (NO) 96% → +4¢ edge on a 92¢ entry
Entry band >90¢ deep favorite · Cluster hormuz-normalization
Thesis. The strait is functionally closed amid an active US–Iran war. Resolving YES requires a full peace deal plus a physical shipping ramp — from ~1 transit/day to a sustained 60+/day for a week — inside 44 days. The ramp time alone makes the tail nearly unreachable even if diplomacy breaks tomorrow.
Evidence- PortWatch recorded 1 transit on Aug 9, 2026 against a pre-crisis baseline of ~73/day; traffic has been near zero since Iran blocked the strait after the Feb 28 air war began (Wikipedia: 2026 Strait of Hormuz crisis).
- The June memorandum-of-understanding ceasefire collapsed in July; the US naval blockade was reimposed (Wikipedia: 2026 Iran war ceasefire).
- As of Aug 12, the IRGC declared the strait closed after firing warning shots, and the US launched further strikes (CNN live, Aug 12); Oman-mediated talks continue but are hung up on Iran's demand for transit tolls the US calls unacceptable (CNN live, Aug 4).
- Ramp math: even during the best ceasefire window, single-day traffic peaked at 28 transits (July, per PortWatch — the print that settled KXMAXSHIPSHORMUZ-26JUL31). A 7-day MA >60 needs more than double that best day, sustained for a week, implying insurers and carriers fully back — i.e., a signed, credible peace by roughly mid-September at the latest.
Resolver (Stage 2.5) IMF PortWatch 7-day moving average; first occurrence above 60 before Oct 1 (early close on trigger). Priced risks: −1 pt PortWatch data revisions (revision noise cannot manufacture a >60 MA from ~0), −1 pt counting-methodology change. Note PortWatch has historically printed lower than commercial trackers (the July KXMAXSHIPSHORMUZ settlement printed 28 vs a tracker's 51) — that asymmetry favors NO here.
Tail risk (cleanest loss) A rapid September grand bargain — tolls dispute resolved, blockade lifted, insurers return immediately — with traffic overshooting the baseline on pent-up backlog. Pent-up ship queues could make the ramp faster than organic growth.
Numbers 163 contracts @ 92¢ = $149.96 cost · max payout $163.00 (+$13.04) · EV +4¢/contract (+4.3%) — recorded, not used for sizing
Liquidity at entry YES 8 bid / 9 ask · NO buyable at 92¢ against 1,523 contracts bid at YES 8 · 24h vol 18,972 · OI 898,785 · resting NO bids: 40k @ 91, 35k @ 90
Price history YES leg drifted 18¢ → 8¢ over the past 14 days on heavy volume (30–54k/day) as the July ceasefire collapse sank in — the market is moving toward this thesis, not away from it
Pick 2 — KXCRYPTOSTRUCTURE-26JAN-OCT · BUY NO @ 0.91 · HIGH CONVICTION
"Will a crypto market structure bill become law before Oct 1, 2026?"
Market implies YES 9–10% → NO ≈ 90–91%
My probability (NO) 96% → +5¢ edge on a 91¢ entry
Entry band >90¢ deep favorite · Cluster crypto-market-structure
Thesis. The calendar is nearly mechanical: the Senate recessed Aug 8 without voting, reconvenes Sept 14, and holds its first CLARITY floor vote Sept 15. Becoming law by Sep 30 then requires cloture (60 votes with Democratic demands unresolved), an amendment process, final Senate passage, the House passing identical text, and a signature — in ~13 working days that are also consumed by the FY27 funding fight. The market's 9–10¢ still overpays for that path.
Evidence- Senate missed the pre-recess window (CoinDesk, Aug 6) and filed cloture on the motion to proceed on Aug 8, with the vote scheduled Sept 15 (CoinDesk, Aug 8).
- Democrat-Republican disagreement over ethics, conflict-of-interest and illicit-finance safeguards remains unresolved; trade press frames even 2026 passage as fading (Bitcoin Foundation, CoinDesk scenarios, Aug 5).
- The House-passed CLARITY text (July 2025) differs from the Senate working text, so House concurrence is a real step, not a formality (Latham & Watkins crypto policy tracker).
- Market corroboration: the sister market on a Senate vote before Oct 1 trades at 88–89¢ while law before Oct 1 trades at 9–10¢ — the book itself prices the vote-to-law gap; my claim is only that 9–10¢ is still a couple of points too high.
Resolver (Stage 2.5) "A crypto market structure bill has become law" — any vehicle qualifies, not just CLARITY. Priced risks: −1 pt market-structure rider attached to a September must-pass (no such rider is in either CR version today), −1 pt Kalshi discretion on what counts as "market structure." Deductions total 2 pts — well under the 15-pt screen.
Tail risk (cleanest loss) Cloture succeeds with a big bipartisan margin on Sept 15, the Senate passes it that week under a time agreement, and the House swallows the Senate text whole before Sep 30 under industry pressure.
Numbers 164 contracts @ 91¢ = $149.24 cost · max payout $164.00 (+$14.76) · EV +5¢/contract (+5.5%) — recorded, not used for sizing
Liquidity at entry YES 9 bid / 10 ask · NO buyable at 91¢ against 638 contracts bid at YES 9 · 24h vol 4,711 · OI 149,216 · resting NO bids: 9.5k @ 90, 15k @ 87
Price history YES leg 7–10¢ range for two weeks (brief spike to 15 on Aug 9–10 around the cloture filing, faded back); no adverse 48h move against the entry
Pick 3 — KXFISAEXTEND-26JUN-26OCT01 · BUY NO @ 0.69 · MEDIUM CONVICTION
"Will legislation that reauthorizes FISA Section 702 authority become law before Oct 1, 2026?"
Market implies YES 31–33% → NO ≈ 67–69%
My probability (NO) 80% → +11¢ edge on a 69¢ entry
Entry band 60–90¢ favorite · Cluster fisa-reauth
Thesis. Section 702 already lapsed in mid-June and Congress has lived with the lapse for two months — the forcing deadline came and went. The House has repeatedly failed to even pass a rule amid the warrant-requirement fight, and the September floor is owned by appropriations (plus CLARITY in the Senate). The market's ~32% for a reauth becoming law in ~13 September working days overrates a negotiation that has produced nothing since April.
Evidence- RISAA's two-year extension sunset April 20, 2026; Congress passed only a 45-day patch on April 30 (CNBC, Apr 30; Holland & Knight).
- As of mid-June the authority lapsed with no agreement, and it has stayed lapsed (Brennan Center 2026 resource page).
- House Republicans lack the votes for a rule; Democratic leaders oppose procedural votes despite bipartisan support for the underlying program (Wiley).
- Urgency is muted: under RISAA's transition provisions, existing 702 certifications continue operating despite the statutory lapse, so the intelligence community is not dark — which is exactly why two months of lapse produced no deal.
- Price corroboration: this market has bled 47¢ → 33¢ over two weeks of no progress; the already-live Sep-1 leg sits at ~5¢.
Resolver (Stage 2.5) "Legislation that reauthorizes FISA Section 702 authority has become law" — no duration floor, so a short-term extension almost certainly counts (the April 45-day patch settled earlier legs of this series YES). Priced risks: −5 pts a stopgap extension counts as reauth, −3 pts a 702 rider attached to the September CR (neither current CR version carries one, but conference could add it). Raw evidence-based NO ≈ 88 − 8 = 80. Deductions total 8 pts — under the 15-pt screen, but this is why the tier is MEDIUM, not HIGH.
Tail risk (cleanest loss) The September CR conference attaches a short 702 extension as a sweetener for national-security hawks and it's signed before Sep 30 — one sentence in a must-pass bill flips this market.
Numbers 101 contracts @ 69¢ = $69.69 cost · max payout $101.00 (+$31.31) · EV +11¢/contract (+15.9%) — recorded, not used for sizing
Liquidity at entry YES 31 bid / 33 ask · NO buyable at 69¢ against 113 contracts bid at YES 31 (next: 1,000 at YES 30 → NO 70¢) · 24h vol 2,440 · OI 22,062 — the 101-contract order fits inside top-of-book but leaves little room; do not chase past 70¢
Price history YES leg fell 47¢ → 33¢ over 14 days (biggest step Aug 12, 45→31 on modest volume); the drift is toward this thesis — entry is later than ideal but the residual 11¢ vs model is still the widest defensible edge on the slate
4. Recommended $1,000 portfolio
| Pick | Action | Limit | Contracts | Cost | % cap | Tier / band (sets size) | Max payout | EV¢ | EV% |
|---|---|---|---|---|---|---|---|---|---|
| KXHORMUZNORM-26MAR17-B261001 | BUY NO | 92 | 163 | $149.96 | 15.0% | HIGH · deep favorite | $163.00 | +4 | 4.3% |
| KXCRYPTOSTRUCTURE-26JAN-OCT | BUY NO | 91 | 164 | $149.24 | 14.9% | HIGH · deep favorite | $164.00 | +5 | 5.5% |
| KXFISAEXTEND-26JUN-26OCT01 | BUY NO | 69 | 101 | $69.69 | 7.0% | MEDIUM · favorite | $101.00 | +11 | 15.9% |
| Total deployed | 428 | $368.89 | 36.9% | $428.00 | |||||
| Cash held | $631.11 (63.1%) — cash is a position; the category is efficient this week | ||||||||
Cluster exposure (cap 15% = $150 per cluster)
| Cluster | Picks | Cost | % of capital | Cap |
|---|---|---|---|---|
| hormuz-normalization | Pick 1 | $149.96 | 15.0% | 15% |
| crypto-market-structure | Pick 2 | $149.24 | 14.9% | 15% |
| fisa-reauth | Pick 3 | $69.69 | 7.0% | 15% |
Conviction exposure
| Tier | Picks | Cost | % of capital |
|---|---|---|---|
| HIGH | 2 | $299.20 | 29.9% |
| MEDIUM | 1 | $69.69 | 7.0% |
| LOW | 0 | $0.00 | 0% (never deploys, v3.3) |
Risk profile
- Most likely outcome (~74% joint, treating picks as independent): all three NOs hold → +$59.11 (+5.9% of capital, +16.0% of deployed) by Oct 1.
- Most plausible single loss: FISA rides the September CR → −$69.69 on Pick 3, +$27.80 on Picks 1–2 = net −$41.89. This is the scenario to watch.
- Worst case (requires a September grand bargain with Iran and crypto law and FISA law — jointly <0.1%): −$368.89. No single cluster can flip the book by more than $150.
- Concentration: two of three picks are >90¢ deep favorites where edge is structurally thin (+4/+5¢); the book's return profile is many-small-wins / rare-moderate-loss, which is exactly the profile the resolved v1/v2 record rewarded.
Execution notes
- Pick 1 (Hormuz): Take the 92¢ NO ask (1,523 contracts available). Do not join the 40k-contract queue at 91 — fill probability is near zero. Invalidation trigger: any signed US–Iran agreement that lifts the blockade — exit immediately if PortWatch daily transits print >30 twice in a week (that pace, sustained, reaches MA>60 in ~2–3 weeks).
- Pick 2 (Crypto): Take 91¢ for the first ~600 contracts; our 164 fit easily. Invalidation: cloture passes Sept 15 with 70+ votes and House leadership signals it will take the Senate text unchanged.
- Pick 3 (FISA): Limit 69¢, size 101 vs 113 visible — if only partially filled, do not chase past 70¢ (edge at 70 is still +10¢ but the book is telling you something if the 1,000-lot at NO 70 pulls). Invalidation: any CR conference text that includes 702 language — exit at market on that headline.
- Watchlist: KXXIUSA-26JUL07-OCT01 YES @ ≤87 becomes a valid HIGH-tier pick if 24h volume re-crosses 1,500 (it printed 2,400–3,700 on Aug 15–16); the Sept 24 visit is confirmed by both governments. KXCLARITYVOTE-26JUL-OCT01 YES likewise on a volume recovery.
5. What I rejected and why
| Ticker | Would-be side | Price | My prob | Reject reason |
|---|---|---|---|---|
| KXBILLSCOUNT-26AUG-0.0 | YES | 91 | 95 | The thesis (recess + unreconciled CR + latest public law Jul 12 = zero August signings) is right — but the market repriced 47→91 in 72h on exactly this reasoning, and the real fillable ask is 93¢ (0.01 contracts rest at 91). ≤2¢ residual edge fails the 48h-move and 3¢-slippage screens. |
| KXXIUSA-26JUL07-OCT01 | YES | 87 | 92 | Fails the Stage-1 volume screen (921 < 1,500 24h). Otherwise the best YES on the board: Xi's White House visit is set for Sept 24 per Trump, with Rubio confirming advance teams (Globe & Mail, Bloomberg). Watchlist — see execution notes. |
| KXCLARITYVOTE-26JUL-OCT01 | YES | 89 | 93 | Volume screen (657). Cloture vote is calendared Sept 15 and "any recorded vote" counts, but a pulled vote could slip past Oct 1 with only 2 weeks of slack. |
| KXGOVTSHUTDOWN-26OCT01 | NO | 85 | 84 | Volume screen (1,007) and, more honestly, no edge: with a 90-6 Senate CR and a House CR passed pre-recess (versions differ only in end-date and anomalies, per Breaking Defense), 15–16¢ YES looks fairly priced for conference risk. Model ≈ market. |
| KXAPRPOTUS-26AUG21-38.9 | NO | 78 | — | A 0.3-point RCP band resolving off a snapshot at 11am Aug 21. No informational edge over poll-watchers; poll add/drop timing at the aggregator is an unpriceable resolver risk (Stage-2.5 screen); the leg moved 22→34 intraday today. |
| KXNJGOLFVISITCOUNT-26AUG-3 | — | 73 | — | Volume screen (1,015) + exact-count schedule noise: the leg whipsawed 86→29→74 in 72h (Aug 14–16). No defensible forecast of two remaining August weekends. |
| KXEOWEEK-26AUG22-1 | YES | 38 | — | Entry-band screen cut: 38¢ is the 35–60¢ coin-flip band, which requires HIGH conviction + ≥15¢ modeled edge; an unverified base-rate lean on weekly EO cadence is nowhere near that bar. Also fails volume (792) with OI of just 605. |
6. Sources
- Wikipedia — 2026 Strait of Hormuz crisis (PortWatch transit counts: 1 on Aug 9 vs ~73 baseline)
- Wikipedia — 2026 Iran war ceasefire (June MOU collapse, blockade reimposed)
- CNN live coverage, Aug 12, 2026 (IRGC closure declaration, US strikes)
- CNN live coverage, Aug 4, 2026 (Oman-mediated talks, tolls dispute)
- IMF PortWatch — chokepoint event page (resolution source, Pick 1)
- CoinDesk, Aug 8, 2026 — Senate opens first stage of CLARITY voting
- CoinDesk, Aug 6, 2026 — no CLARITY vote before summer break
- CoinDesk, Aug 5, 2026 — CLARITY scenarios
- Bitcoin Foundation — CLARITY vote pushed to September
- Latham & Watkins — US Crypto Policy Tracker
- CNBC, Apr 30, 2026 — Congress passes short-term 702 extension
- Brennan Center — Section 702: 2026 resource page (mid-June lapse)
- Holland & Knight — Congress poised to consider FISA extension
- Wiley — 702 deadline dynamics and House rule failures
- National Archives — Public laws, current session (latest: PL 119-102, Jul 12, 2026)
- Breaking Defense, Aug 2026 — Senate passes stopgap 90-6 (CR versions unreconciled; Dec 11 vs Dec 4)
- Globe & Mail — Xi to visit US Sept 24, Trump says
- Bloomberg, Jul 20, 2026 — Rubio: Xi still set to visit
Data sources: Kalshi live market mirror (read-only SQL over trading_events, trading_markets, market_snapshots), Kalshi public trade API (live order books, 24h volume, open interest, captured 2026-08-17), and the primary sources linked above. Methodology v3.3 (conviction-weighted, EV-agnostic sizing; 60–90¢ favorite bias; hard reject of sub-35¢ tails and LOW-tier deployment; 15% cluster cap; Stage-2.5 resolver risk pricing).
Disclaimer: All probabilities are subjective estimates by an automated research process. Prediction-market contracts can and do resolve to zero; edge estimates are uncertain and historically the process's own EV estimates have been anti-predictive, which is why they do not drive sizing. This report is a research artifact for a tracked public record, not financial advice.