Hedging sports bets

King Yao is the author of Weighing the Odds in Hold‘em Poker, and Weighing the Odds in Sports Betting. He uses his experience from making millions in financial derivative markets and translates it into gambling. Since he left his trading position in 2000, he has been playing poker and betting on sports. He travels to Las Vegas frequently, especially during football season.

Prospective bettors should know the basic principles of sports betting. All other types of casino advantage players, including blackjack players of all skill sets, which includes card counters, should have good working knowledge of Expected Value as well. You should not be betting online or anywhere else without this fundamental knowledge.

A hedge is a financial term defined as a trade that reduces the risk of a current position. Traders in the financial markets hedge their positions at times, and sports bettors hedge their bets at times too. Almost any bet can be hedged if there is enough time to make a wager and someone else willing to take the other side. But not all hedges are good ideas; some have more cost than benefit. Other hedges may exchange one risk for another without you being fairly compensated.

If lines are efficient, you theoretically are paying a vigorish (“vig”) to make any wager. This includes initial wagers as well as hedging wagers. Any hedge theoretically has a negative EV associated with it, just as any other wager does too. Be judicious when hedging a bet because the hedge may do more harm than good. While a hedge may reduce the risk of an existing position, if the hedge is negative EV, then the loss in EV may overshadow the reduction of risk. The question for you to ask yourself:

Is it worth paying the negative EV in a new wager in order to reduce the risk in the initial wager?

Most of the time the answer is no. Usually the negative EV in a hedge is not worth the reduction of risk in the initial wager. This includes closing a position, creating middles, hedging futures bets and most other scenarios. There are some exceptions when there are valid reasons to hedge. These reasons fall into four categories. I will describe each reason in detail and give examples in practice.

Valid Reasons to Hedge

• The risk of the original wager is too great
• The hedge has positive or zero EV
• The hedge was pre-planned as part of the original wager
• The hedge releases capital and increases the opportunity to make future positive EV bets
• The risk of the original wager is too great

Sometimes the risk of a position is too great for you to stomach. The thought of losing the bet has such negative connotations that you do not mind giving up EV in order to reduce the risk. This is not usually a good situation to be in. It could mean you did not plan correctly and overbet your bankroll. You should try to bet within the limits of your bankroll as often as possible. But there are times when a wager is too good to pass up because of the high EV.

The next article in this series will show examples of good initial wagers with hedging because of the size of the risk.

This is part of an occasional series of articles.

Excerpted with permission from the e-book version of Weighing the Odds in Sports Betting by King Yao, edited for this format.