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i'm the minority

Posted By: docriver
Date: 13 Aug 01, 8:38 pm

In Response To: Size your bets according the payoff, not the bet size. (Stanford Wong)

First, let me say the 40-1 wager and hedge was a hypothetical.

let's say you think something is offered at 40-1...let's phrase that in terms of dollars per 100 - so you are buying the asset at $2.5 and if you win you get $100. But you think its worth $5.00...so you can take in $2.50 of edge to purchase the contract. You know that all that can happen is that your contract goes to zero or goes to 100. But once it reaches $50, you can get out at $45. So you think you have a 1/20 chance of winning (1/20 = $5)....so 1/20 times you are losing $5 - which is equal to $0.25. So instead of winning $2.50 edge, you are only winning $2.25 edge.

Now I would rather win that $2.25 a thousand times than win $2.50 a hundred times. The fact that I know I will hedge and lose at some points later on does not overbite the tremendous edge that I gained right off the bat.

Maybe Mathboy is explaining it better than me, I'm not sure. Its not a pure arb as he explained, because the 20/1 vs a line of 40/1 offered is a cap...not an arb.

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Messages In This Thread

How to handle the "huge exposure game" -- Fezzik -- 12 Aug 01, 11:53 pm
So, will you be hedging against the Mariners in October? -- James -- 13 Aug 01, 12:33 am
Difference between A's and Eagles -- StevieY -- 13 Aug 01, 11:35 am
that's not a hedge -- docriver -- 13 Aug 01, 12:10 pm
Yes and no -- StevieY -- 13 Aug 01, 12:33 pm
risk -- docriver -- 13 Aug 01, 1:04 pm
Hedging -- StevieY -- 13 Aug 01, 1:38 pm
Example please? -- docriver -- 13 Aug 01, 1:56 pm
Example -- StevieY -- 13 Aug 01, 5:36 pm
because you have 40x in equity now -- docriver -- 13 Aug 01, 6:01 pm
above title should read : 18x, not 40x (nt) -- docriver -- 13 Aug 01, 6:08 pm
You aren't wagering 18,000+ -- StevieY -- 13 Aug 01, 6:11 pm
Agree to disagree -- docriver -- 13 Aug 01, 6:20 pm
You are both right, even disagreeing -- Fezzik -- 15 Aug 01, 1:32 am
Size your bets according the payoff, not the bet size. -- Stanford Wong -- 13 Aug 01, 6:39 pm
he really has found some arbitrage -- Math Boy -- 13 Aug 01, 8:21 pm
You can always overbet if the marginal EV from betting more is less than th -- docriver -- 13 Aug 01, 8:41 pm
Practical issues -- James -- 14 Aug 01, 11:27 am
i'm the minority -- docriver -- 13 Aug 01, 8:38 pm
hedging futures bets -- rainmandon -- 21 Aug 01, 7:51 pm
I understand the bet... -- StevieY -- 21 Aug 01, 7:58 pm
hedging futures -- rainmandon -- 21 Aug 01, 9:22 pm
I understand the bet... -- StevieY -- 22 Aug 01, 6:40 pm
Sea hedge -- Fezzik -- 15 Aug 01, 1:34 am
Oops.......I showed my Sea Bias -- Fezzik -- 15 Aug 01, 1:36 am
I'm in the same boat. I won't hedge. -- Stanford Wong -- 13 Aug 01, 8:57 am
Risk-averse betting? -- John May -- 13 Aug 01, 9:14 am
Agree -- Don Schlesinger -- 14 Aug 01, 1:11 pm
1 investment question -- Fezzik -- 15 Aug 01, 2:29 am
Attempt at some answers -- Don Schlesinger -- 15 Aug 01, 8:13 am
how much does money mean to you? -- docriver -- 15 Aug 01, 8:39 am
In-the-money options -- Jaeger -- 23 Aug 01, 6:44 pm
No -- Don Schlesinger -- 23 Aug 01, 8:55 pm
Risk-averse betting? -- lepto -- 14 Aug 01, 1:33 pm
Your bet suffered turf toe -- McNabb#1 -- 14 Aug 01, 4:24 am

 

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