To Hedge or Not to Hedge, That is the Question

Frequently, bettors think about one wager, but not how an individual position relates to their other gambles. No financial planner would ever suggest pouring your cash into only one spot. If you consider your bets in tandem, you might be sitting on a nice futures ticket with the Panthers or Broncos. However, your work may not be done. Let it ride, or hedge?

The sexiest of all bets is horse racing’s Pick 6. Essentially it’s a six race parlay where educated handicappers play multiple combinations, trying to hit a bet than can pay six figures and averages around a $25,000 payout for a $2 wager. Most astute gamblers, if they know they’re on the cusp of a large payout, bet all other options besides what they already have if they can guarantee a sizable profit.

There is no hard and fast rule to hedging because everyone has a different risk tolerance and bottom line. If you consistently try to win 55 or 56-percent of your wagers, knowing that you are going to cash is very attractive. If you are in it for a thrill, and the money isn’t life changing, going the distance with the greatest possible payout isn’t crazy either.

When Kelvin Benjamin was injured during the preseason, the Panthers line went from 40/1 to 50/1 to win the Super Bowl. If you placed a $100 bet on Carolina at that point, your ticket is 60 minutes away from being worth $5,000. Before the year began, you could wager the Broncos at 12/1. A $400 wager on Denver is now one win away from a $4,800 score.

For the sake of argument, let’s say you have the Panthers at 50/1 for $100. Do you want to bet some of your possible $5,000 payout on Denver? The Broncos’ moneyline is about +160. If you take 15-percent of your possible big win, and bet $750 on Denver, you guarantee cashing a ticket for at least $1,200. In other words, if Denver wins, you make 11-times your initial investment (subtract the $100 you bet to start from the $1,200 win), and if the Panthers prosper, you still make $4,250.

The math is a bit more difficult if you have the Broncos at 12/1 for $400. Carolina’s moneyline is -180. It takes a bet of just over $1,450 to guarantee that you profit at least $400. In doing so, you take a major bite (30-percent) out of your potential payoff for a Denver win. If the Panthers raise the Lombardi Trophy, you would make $400 total ($800 on the hedge minus the $400 original bet). If Denver wins, you’d be left with $3,350.

What I just described are partial hedges. You can also go all-in on the secondary bet guaranteeing yourself an equal profit regardless of who wins the game. In the first example, a $1,900 wager on Denver means a $3,040 payday if the Broncos win and a $3,100 winner if Carolina triumphs. In the second example, a $3,350 bet on the Panthers would yield an $1,842 winning ticket (and a total profit of $1,442 subtracting the original bet), and a Bronco victory would net $1,450.

Whether you hedge or not is a personal choice. However, betting on futures makes a lot more sense when you consider the position they can put you in. It is fun to throw down a few bucks on a team and cheer for them throughout the season. That said, if you make a good investment early on, another well thought out decision can guarantee a nice profit.

 

(Photo credit: Jeffrey Beal (flickr) [https://creativecommons.org/licenses/by-sa/2.0/legalcode].)

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