Hedge to Win

I checked out one of my favorite poker and sports blogs today, here, and the hedge concept was discussed. This one applied less to hedging in poker and more about sports betting hedging. The author has been gambling on the NCAAAs by filling out a ton of brackets. Apparently he picked the Tar Heels to win and did well enough in his other brackets to have a chance to win some cash.

The only problem is, the way the rankings work. If UNC loses, he wins nothing. Yet, if he hedges he can guarantee a win regardless of whether or not UNC wins. Let's break down the math.

Hypothetically the author to win $1,100 if UNC wins the game. We'll call that outcome A. If they lose he wins nothing. We call that outcome B. Let’s assume he’s risked say $100 to have this opportunity. So technically, if they lose he actually loses his $100 and his profit if they win is only $1000.

Thus: A = $1000. B = -$100.

Can he hedge to make this better for him?

Yes, if he bets michigan state for anything over $100 he guarantees he'll win. Let's say he bets Michigan State to win outright and wagers $101. Now outcome A is lessened but outcome B is increased.

Thus: A = $899. B= $1.

You can see why it might make sense to guarantee himself at least a free roll, although reducing his profit margin if UNC does win.

On top of that North Carolina is big favorite in the game--which actually makes his hedge potentially even more lucrative. Why hedge if you team is a big favorite? The point spread is 7.5 which is a big line for college basketball and that creates a large win zone for the player.
Now there are three outcomes if he bets Michigan State, because he can still win if they don't win outright.

Let's say he bets $250 because he wants to win a little more money. In outcome A, UNC wins and covers the 7.5 points. Thus, he wins $750 (and cost himself $250 by hedging). However, if Michigan State wins outright the player now wins $250 for a profit of $150 for outcome B. However, if UNC wins but MSU covers and loses by a margin of 1 to 7 points there is an even more profit margin with the player winning $1000 for UNC winning and $250 for UNC covering.

Thus: A = $750, B = $150, and C = $1250.

Now there is even more reason for the player to hedge.

The hedge is a good play. Incidentally, as the blogger points out online gamblers should consider betting on the Heels for no other reason than the fact they too are gamblers. Read Sports Illustrated’s article here.

To understand how this applies to poker read bet and win's take. Hedging scenarios are difficult to spot in poker, but for the reasons they are profitable in sports gambling above they can be really proftiable in poker too. Look for them, and exploit them.