# Polymarket Arbitrage

> Polymarket arbitrage sub-strategy. Part of paper-trader skill. Identifies mispriced markets, correlated market discrepancies, cross-platform opportunities. SUB-STRATEGY: Managed by parent paper-trader orchestrator.

- Skill: `kernel8901/polymarket-arbitrage-2` (Agent Skill, multi-file: 4 files)
- Install (CLI): `npx skillmds@latest add kernel8901/polymarket-arbitrage-2`
- Raw SKILL.md: https://api.skillmd.com/api/skills/kernel8901/polymarket-arbitrage-2/raw
- Safety review: pending
- Works with: Claude Code, Claude.ai, OpenAI Codex
- Category: Coding & Dev Tools
- Author: kernel8901 (https://skillmd.com/u/kernel8901)
- Updated: 2026-09-17
- Page: https://skillmd.com/skills/kernel8901/polymarket-arbitrage-2

---


# Polymarket Arbitrage Strategy

**PARENT**: This is a sub-strategy of `paper-trader`. Portfolio-level rules in `../../SKILL.md` take precedence.

**ROLE**: Identify and trade market-neutral arbitrage opportunities on Polymarket.

## Orchestrator Integration

**Report to parent orchestrator:**
- Log all arbs to `references/arb_journal.md`
- Parent reads this for unified portfolio view
- Parent enforces cross-strategy risk limits

**Check parent before trading:**
- Verify portfolio-level exposure limits in `../../references/master_portfolio.md`
- Check correlation with PM Research positions (same markets)
- Respect parent's risk level (🟢/🟡/🟠/🔴)

**Your job within the system:**
1. Identify mispriced markets and arbitrage opportunities
2. Paper trade with documented reasoning
3. Track performance and update this skill with learnings
4. Strategy-level Telegram updates flow through parent orchestrator

## Reference Files

- `references/arb_journal.md` - All arb logs
- `references/strategy_evolution.md` - Strategy iterations
- `references/market_correlations.md` - Known relationships
- `../../references/rick_preferences.md` - Rick's preferences (parent level)

## Arbitrage Types

### Type 1: Same-Market Mispricing

When YES + NO doesn't equal 100% (minus fees).

```
Example:
- "Will X happen?" YES: 45¢, NO: 52¢
- Combined: 97¢ (should be ~98¢ after fees)
- If combined < 98¢: Buy both sides
- If combined > 100¢: Guaranteed loss exists
```

**Detection**: Scan markets where YES + NO != 100% ± 2%

### Type 2: Correlated Market Arbitrage

Markets that should have mathematical relationships but are mispriced relative to each other.

```
Example:
- "Will Biden win election?" YES: 30¢
- "Will a Democrat win election?" YES: 25¢
- Illogical: Biden winning implies Democrat winning
- Arb: Buy "Democrat wins" at 25¢, it must be >= 30¢
```

**Detection**: Find logically connected markets with price inconsistencies

### Type 3: Conditional Probability Arb

Markets where conditional outcomes are mispriced.

```
Example:
- "Will X happen in January?" YES: 20¢
- "Will X happen in Q1?" YES: 15¢
- Illogical: Q1 includes January, must be >= January price
```

### Type 4: Time Decay Arb

Markets approaching resolution where prices haven't adjusted to near-certainty.

```
Example:
- Event happening in 2 hours
- Strong evidence it will happen
- YES still at 85¢ when should be 95¢+
```

### Type 5: Cross-Platform Arb

Same or equivalent events priced differently across platforms.

```
Platforms to monitor:
- Polymarket (primary)
- Kalshi
- PredictIt (if accessible)
- Manifold Markets (for signals)
```

## Paper Trading Protocol

### Starting Parameters
- Initial paper balance: $10,000 USDC
- Max per arbitrage: 10% ($1,000)
- Min expected edge: 2% (after fees)
- Polymarket fee assumption: ~2% round trip

### Trade Documentation

**EVERY arb opportunity must be logged to `references/arb_journal.md`:**

```markdown
## Arb #[N] - [DATE]

**Type**: [1-5, which arb type]
**Markets Involved**:
- Market A: [name] - [YES/NO] @ [price]
- Market B: [name] - [YES/NO] @ [price]

**Theoretical Edge**: X.X%
**Position Size**: $XXX per leg
**Net Exposure**: $XXX or $0 (hedged)

### Setup Analysis
- [Why this is an arb]
- [Mathematical relationship]
- [Risk factors]

### Outcome
- **Resolution Date**: [date]
- **Result**: [which side won]
- **P&L**: +/-$XX
- **Actual Edge**: X.X%

### Learnings
- [What worked]
- [What was missed]
- [Adjustment needed]
```

## Market Scanning Workflow

### Hourly Scan (via headless browser)

```
1. Navigate to polymarket.com/markets
2. For each active market:
   a. Record YES price, NO price
   b. Calculate YES + NO spread
   c. Flag if spread < 96% or > 102%

3. Build correlation map:
   a. Group markets by topic (elections, sports, crypto, etc.)
   b. Identify logical relationships
   c. Check for price inconsistencies

4. Cross-reference with:
   a. Kalshi (kalshi.com) for same events
   b. News for time-sensitive opportunities

5. Calculate expected value for each opportunity:
   EV = (Win probability × Win amount) - (Loss probability × Loss amount) - Fees
```

### Correlation Detection

Maintain `references/market_correlations.md` with known relationships:

```markdown
## Correlation: [Topic]

### Markets
- Market A: [ID/Name]
- Market B: [ID/Name]

### Relationship
[Mathematical relationship: A implies B, A + B = C, etc.]

### Historical Spread
- Average: X%
- Range: X% to Y%
- When spread > Y%: Consider arb
```

## Telegram Updates

**REQUIRED**: Send updates to Rick via Telegram unprompted.

### Update Schedule
- **Morning scan** (9 AM): Active arb opportunities found
- **Trade alerts**: When entering/exiting positions
- **Resolution alerts**: When markets resolve
- **Evening summary** (6 PM): Daily P&L, open positions

### Message Format
```
[CLAWDBOT POLYMARKET ARB UPDATE]

Paper Portfolio: $X,XXX (+/-X.X%)

Open Arbitrage Positions:
- [Market A vs B]: Edge X.X%, resolves [date]
- [Market C]: Time decay play, target [date]

Today's Scan Results:
- Markets scanned: XXX
- Opportunities found: X
- Average edge: X.X%

Best Current Opportunity:
[Market name]
- Type: [arb type]
- Edge: X.X%
- Confidence: [High/Medium/Low]
- Risk: [Description]

Strategy Notes:
[Observations about market efficiency]
```

## Self-Improvement Protocol

### After Every 10 Resolved Arbs

1. **Calculate metrics**:
   - Realized vs theoretical edge
   - Win rate by arb type
   - Average holding period
   - Slippage analysis

2. **Update `references/strategy_evolution.md`**:
   ```markdown
   ## Iteration #[N] - [DATE]

   ### Performance Last 10 Arbs
   - Win Rate: XX%
   - Avg Edge Captured: X.X%
   - Theoretical Edge: X.X%
   - Slippage: X.X%

   ### By Arb Type
   | Type | Count | Win Rate | Avg Edge |
   |------|-------|----------|----------|
   | 1 | X | XX% | X.X% |
   | 2 | X | XX% | X.X% |
   | ... | | | |

   ### Strategy Adjustments
   - [Changes to min edge threshold]
   - [Changes to position sizing]
   - [New correlation patterns]
   ```

3. **Update this SKILL.md**:
   - Add new arb patterns discovered
   - Update min edge thresholds
   - Document new market correlations
   - Remove strategies that don't work

## Risk Management

### Position Limits
- Max single market exposure: 10% of portfolio
- Max correlated exposure: 20% of portfolio
- Max illiquid market exposure: 5% of portfolio

### Edge Requirements
- Type 1 (same-market): Min 1% edge
- Type 2 (correlation): Min 3% edge (harder to verify)
- Type 3 (conditional): Min 3% edge
- Type 4 (time decay): Min 5% edge (timing risk)
- Type 5 (cross-platform): Min 2% edge

### Exit Rules
- Exit if edge compresses below 0.5%
- Exit if new information changes correlation logic
- Always exit before resolution if uncertain

## Market Efficiency Observations

**UPDATE THIS SECTION AS YOU LEARN:**

### Most Efficient (Hard to Arb)
- [e.g., "Major elections within 1 week of resolution"]

### Least Efficient (Best Opportunities)
- [e.g., "Niche sports markets with low volume"]
- [e.g., "Newly created markets in first 24h"]

### Timing Patterns
- [e.g., "Mispricings common during low-volume hours (2-6 AM EST)"]

## References

- `references/arb_journal.md` - All trade logs (CREATE IF MISSING)
- `references/strategy_evolution.md` - Strategy iterations (CREATE IF MISSING)
- `references/market_correlations.md` - Known relationships (CREATE IF MISSING)
- `references/fee_analysis.md` - Platform fee tracking (CREATE IF MISSING)

## Integration with Rick's Feedback

**After every conversation with Rick:**
1. Note any preferences or suggestions
2. Update relevant reference files
3. Adjust risk parameters if indicated
4. Acknowledge feedback in next Telegram update

**Rick's Known Preferences:**
- [UPDATE based on conversations]
- [Risk tolerance notes]
- [Preferred arb types]
- [Markets to focus on or avoid]