Hedging debate opinions wanted plz

[psycho]

Mallers, I found a very insightful article on the net concerning hedging. Plz give me your opinions on this.

Hedging in Sports Betting Part 2

by King Yao


In last month’s article, I discussed the valid reasons to hedge. In this month’s article, I will discuss some common mistakes that bettors make when hedging.

Mistakes made when Hedging

If there are no valid reasons to hedge, then it is a mistake to hedge. Most bettors do not have valid reasons when they hedge. Here are some of the possible mistakes sports bettors make when hedging.

Hedging due to line movement

A common mistake sports bettors make is hedging their bets when the line moves in their favor without regard to whether the hedge is positive EV or negative EV. For example, a bettor bets on a Team at –3 points and then the line moves up to –5 before the game starts with no new pertinent information such as injuries or weather. Some bettors will now look to bet on the other team at +5 as a hedge and create the possibility of winning both bets. This knee jerk reaction gets the bettor into a seemingly nice middling opportunity, but it may not be worth it if the hedge is a negative EV bet. The bettor is probably better off not hedging and keeping the risk in the initial bet. The issue that confuses some bettors is that the combination of the initial bet and the hedge is positive EV. But since the hedge is a negative EV bet, it means the positive EV on the initial bet is greater than the positive EV on the combination of the initial bet and the hedge. Here is an example.

Example:

In a small sportsbook, you bet $100 on over 199 on a NBA game. You trust your handicapping which shows the right number is 203. If you had the opportunity, you would have been happy to bet $500 on the over, but this sportsbook’s limit is only $100 on NBA totals.

As the time gets closer to tip-off, the line starts to creep up, and five minutes prior to tip-off, the total has moved up to 202. Betting under 202 as a hedge is a mistake in this case, especially if you have to pay the vigorish. You believe your number of 203 is correct, so taking under 202 is a negative EV bet. This was a small wager for you, so the risk is not too large; there is no valid reason to hedge. It is a mistake to bet under 202 just because you had bet over 199 and the line moved in your favor. Although the combination of Over 199 and Under 202 is positive EV, the sole bet of Over 199 has greater positive EV.

If the total had moved to 203, it is still a mistake because you have to pay the vigorish to bet it. If the line moved to 203.5 –110, then it may be worthwhile depending on what you think of the value of the half point from 203 to 203.5. If you think the half point is worth exactly 10 cents, then it would be a zero EV bet and it would be right to take the under as a hedge.

Avoiding a positive EV hedge because it creates a reverse middle

In the previous section, the mistake was the bettor making a negative EV bet as a hedge when the line moves. Avoiding a positive EV hedge because it creates a reverse middle is the opposite mistake. The bettors who make this mistake are worried about the small possibility of losing both the initial bet and the hedge. In the previous section, the bettor is making the mistake of paying too much to get into a middle opportunity. In this section, the bettor is making the mistake of giving up a positive EV opportunity so that the bettor does not have a possible reverse middle. Here is an example:

Initial bet: Philadelphia Eagles –5.5 –110 vs. Green Bay Packers

The bettor has handicapped this game and thinks the fair line is Philadelphia –7 and thinks there is positive EV in this bet.

Later that week, there is news that Donovan McNabb has injured his throwing hand in practice and is out for the rest of the year. The bettor re-evaluates the Eagles without McNabb and now handicaps the fair line in the game as Philadelphia –2.5. The line has not moved down as much and the bettor has the opportunity to make this positive EV hedge bet:

Possible positive EV hedge: Green Bay +3.5 –110 vs. Philadelphia Eagles.

The bettor thinks the fair line is Philadelphia –2.5. That means a line of Green Bay +3.5 –110 is a positive EV bet. Even though making this bet would put the bettor into a possible reverse middle when combined with the original bet of Eagles –5.5, the bettor should still make the bet because it is a positive EV bet. If the bettor had not made the initial bet, the bettor would have been happy to bet Green Bay +3.5. The bettor should be happy to make that bet even though he has made the initial bet.

Unfortunately, some bettors will avoid this positive EV hedge because they are scared of creating a reverse middle and losing both sides. This can happen if the Eagles win by exactly 4 or 5 points; both bets will lose in that situation. But given the handicapped numbers that the bettor generated, the bettor should be playing the hedge as well because the positive EV is much greater relative to the risk of being middled. It is possible that the risk of being middled is too great for the bettor in some situations, but it is important to analyze those risks and compare them to the EV rather than avoiding them just because of the possibility of a reverse middle.

Increasing risk with a hedge

If the correlation of a hedge to the initial bet is close to zero, then a hedge may increase risk rather than decrease risk. A correlation of zero means the two wagers are not related at all; one wager winning or losing gives no useful information about whether the other wager is likely to win or lose. A high correlation between two wagers means the two wagers are very much related and if one wins, the other is very likely to win as well. If one of those wagers is reversed and the player bets the other side, then the two wagers would have a high negative correlation. If one wager wins, then the other wager is very likely to lose.

A bettor looking to hedge is looking for a high positively correlated wager to the initial wager. Finding a high positively correlated wager means the bettor has also found a high negatively correlated wager because the bettor can simply bet the other side. But if a wager has close to zero correlation, then it is not a good hedge since the bettor has no reason to believe the hedge has a good chance of winning if the initial bet loses.

If the “hedge” with zero correlation is a positive EV bet, then it may be an ok bet if the bettor is comfortable with the increased risk. In that situation, classifying the positive EV bet as a hedge is incorrect. It is just a different bet, not a hedge. On the other hand, if the “hedge” with zero correlation is a negative EV bet, then the bettor has the worst of both worlds; the bettor bet into a negative EV wager and increased his risk at the same time. This is a quick road to ruin for a sports bettor.

Hedging a bet that has little exposure left

Bettors will sometimes try to recoup the money they expect to lose in a wager that now has a low probability of winning. They think about making a second bet and rationalize it as a hedge when in fact it is not. If an initial bet has a very low chance of winning, it means the bettor does not have much risk in the bet anymore. It is a mistake to chase good money after lost money, especially if the good money is being bet on a negative EV wager.

Example:

You bet the Boston Celtics to win the Atlantic Division. With 20 games to go, they are 15 games out of first place. Your bet has a very low chance of winning, which means there is little exposure left in your original wager. To bet against the Boston Celtics as a hedge in any individual game does not make sense. Those bets on individual games against the Celtics do not hedge the initial bet. Some bettors will rationalize betting against the Celtics as a way to recoup the money the lost on the Celtics to win the division.

Other times, bettors make the mistake of hedging a bet that has a high chance of winning by betting too much on the hedge. Hedging may not be a bad idea, especially if it is a zero EV or positive EV bet. But, hedging too much on a zero EV or negative EV bet will increase risk unnecessarily.

Example:

You bet $10 on the Orlando Magic to win the Atlantic Division at 8 to 1 odds. With 10 games to go, they are up by 6 games and you estimate they have a 95% chance of winning the division. If they lose their next game, their chances will decrease to 92%.

EV of the division bet before tonight’s game:

95% x $80 – 5% x $10 = $75.50

EV of the division bet if the Magic loses tonight’s game

92% x $80 – 8% x $10 = $72.80

If the Magic loses tonight’s game, the EV of your initial wager will go down by $2.70 ($75.50 - $72.80).

Betting more than $2.70 as a hedge is over-hedging and is a mistake, especially if the hedge is a negative EV bet.

Hedging the last leg of a parlay

This mistake is not necessarily in the hedge, but in the original parlay. Some bettors like to hedge the last leg of a parlay if they are lucky to have won the first legs of the parlay. Before the last leg of the parlay, they realize they can lock in a profit and they cannot resist. Instead of paying the vigorish to bet against the last team of the parlay, the bettor should simply play a parlay with fewer teams. For example, instead of playing a 5-team parlay where the bettor knows he is likely to hedge if he wins the first four games, the player should simply play a 4-team parlay instead. The exception to this is if the sportsbook is offering better relative odds for choosing more teams in a parlay. In that case, the player may have decided ahead of time to hedge and calculated the cost of the hedge into the parlay. That is an exception though and is not usually the case.

This mistake is made when players have the lottery mentality. They want to hit it big and get a lot of bang for their buck. These players will tend to play parlays with many teams so they can win big if they get really lucky. However, if they do get lucky and have just one or two teams to go to win the parlay, often they get nervous with their newfound risk of losing the parlay now that it has tremendous value. Hedging is not necessarily a mistake if they feel the risk is too high and cannot stomach losing. The mistake was putting themselves in that position in the first place by playing too many teams in the parlay.

Hedging the 2nd Half of the game

This is a similar problem to hedging the last leg of a parlay. Some bettors will look to hedge their initial bets on the game at halftime if they can try to get into a middle situation. Usually the 2nd half bet is a negative EV bet if the sportsbook are doing their job correctly. And usually the bettor has no valid reason to hedge. Of course, if the 2nd half bet is a positive or zero EV bet, then it is a good idea to hedge. Here is an example of a hedge in the 2nd Half that is a mistake.

Example:

You took the Giants +3.5 versus the Eagles. At the half, the Giants are up 14-0. The 2nd Half line is PHI -4. Many will bet the Eagles -4 in the 2nd half as a hedge against their initial bet in the game. The thought process is that the bettor is creating a big middle. The bettor will win both bets (or tie one side and win the other) if the Giants win by 1 through 10 points or if the Eagles win by 1 through 3 points. This big middle is enticing for many players. However, it is important to note that the player has a very high chance of winning the initial wager already. The benefit of the big middle did not come about from the 2nd half bet, but rather it came from the increased EV of the initial wager based on the play in the 1st Half.

In football and basketball, 2nd half bets are popular. Smart players can sometimes use the expectation of which side other players will bet in the 2nd Half and take advantage of it. These smart players have a good understanding of which team the money was bet on before the game, line movement, the type of bettors that moved the line, the type of customer base that frequent the specific sportsbook and the risk profile of the sportsbook. The action is faster for the 2nd half bets because there is small window of time when the 2nd half bet is available. This can mean a higher diversity of lines between sportsbooks than one may typically see for game lines. The sportsbooks also seem to move their lines for the 2nd half bets faster due to the high volume of bets in a short time period.

If a smart player knows other bettors will hedge their bets and play a specific side in the 2nd Half, the smart player may be able to use that information by betting that side when the 2nd Half line is first posted and get the opening number before the sportsbook starts to move the lines due to action. After the line moves due to the flood of other bettors betting that side, the smart player can come in and bet the other side to create a nice scalp or middle opportunity.

Missing an initial bet because you do not believe in hedging

Some sharp bettors think they know that hedging is a bad idea, so they completely dismiss the idea and never even think about hedging. This can be a mistake because it may mean the sharp bettor is passing up some opportunities to make more money. One situation that comes up where hedging is useful is when a bettor thinks there is a high chance the line will move so much that he can bet the other side at a better price at a later time. This means he can make an initial bet that he would not normally make (or a larger than normal initial bet) because he knows he is going to hedge it in the future and probably have a nice scalp or a nice middle. Without the possibility of hedging, the bettor may not make the initial bet at all and miss out on making some money.

Here is an example where the line has a high chance of increasing. One bettor completely ignores the thought of hedging, while the other bettor takes advantage of the situation knowing that he will enter into a negative EV hedge bet in the future.

Example:

Scenario: It is Tuesday night and the Dodgers are playing the Giants. Before the game starts, several sportsbooks already have lines on the Wednesday game, which is set at Dodgers –160, Giants +150. That seems like a fair line.

In the first inning of the Tuesday game, Barry Bonds pulls a hamstring muscle while chasing a flyball in left field. He is taken out of the game after the play and later the broadcaster announces that Bonds will be put on the Disabled List. This means he will definitely not be playing tomorrow. Bonds is still one of the best hitters in baseball, and having him out of the lineup is a big blow the Giants. The Wednesday line of Dodgers –160 is now a great bet without Bonds in the Giants lineup.

Bettor #1 is a smart player who tries to take advantage of mistakes made by sportsbooks. But he does not think hedging is a good idea since he is willing to take any risks that he bets on and is not happy with making any negative EV bets. When he sees the injury to Bonds, he quickly races to the sportsbook and makes a normal sized bet. The line is still Dodgers –160 and he bets $160 to win $100. In the morning, he notices the line has moved up to Dodgers –200, Giants +180. He is happy with his nice positive EV bet on the Dodgers –160. He does not hedge because he is not interested in making a negative EV bet to get out of his risk. Given the size of his original wager, it is smart of him not to hedge. The fair value on the Dodgers is –190 (or 65.5%), and the EV of his initial bet is:

Bettor #1’s EV: $100 x 65.5% - $160 x 34.5% = +$10.30

Bettor #2 is also a smart player who tries to take advantage of mistakes made by sportsbooks. But he is willing to keep an open mind and tries to make as much money as possible. His normal sized bet is the same as Bettor #1, but instead of betting $160 to win $100 on the Dodgers when he sees the injury to Bonds, he bets three times as big, $480 to win $300. In the morning when the Bonds injury is imbedded in the new line, Bettor #2 happily makes a negative EV bet by betting $200 on the Giants at +180, and he is left with a normal sized bet of $160 to win $100 on the Dodgers. Here is the combined EV of Bettor #2’s bets:

Bettor #2’s normal sized bet on the Dodgers –160:

$100 x 65.5% - $160 x 34.5% = +$10.30

Bettor #2’s additional bet that he will hedge:

$200 x 65.5% - $320 x 34.5% = $20.60

Bettor #2’s hedge bet EV:

$360 x 34.5% - $200 x 65.5% = -$6.80

Total EV: $10.30 + $20.60 - $6.80 = +$24.10



Bettor #2 is well aware that the hedge is a negative EV bet. However, he also knows that without the hedge, he would not have made the initial bet of $480 to win $300. If he was%

[pwherr]

[hammink]

I read King Yao's book on limit hold em, which is very math heavy. The guy knows his stuff for sure. Thanks for the post.

[dave nz]

I didn't read all the article, so sorry if this was in there.....but for me the decision whether you hedge or not should come down alot to a personal Issue..... how much you need / want the money, or would miss the money from whether you hedge or not.
I see the question should I hedge or not asked alot and that IMO is one of the key things u need to ask yourself.