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Practical issues

Posted By: James
Date: 14 Aug 01, 11:27 am

In Response To: he really has found some arbitrage (Math Boy)

In your hypothetical case, Doc bet $5k on Seattle at 20:1 when the market odds were 10:1.

Your contention is that this is safe, because he could always cover his bets and lock in a profit if market conditions begin to change.

Assume that he has access to lines (including 10:1 Seatle) that work out to a 0% vig (equiv. probabilities add up to 100%). Early in the season, this may be very optimistic.

With 10:1 on Seattle instead of 20:1, he has access to approx. a -4% vig. A fully hedged portfolio including $5k on Seattle would have a total cost of about $100k, for instance including about $30k+ at a good line on the Yankees.

It is just possible that Doc would have encountered difficulties in getting down $100k in futures bets, or at least be disinclined to lock up $100k for the season even if he had it lying around.

Dialing back to a smaller level, I have only $500 on the Mariners, and will be due over $10k if they win. If the Mariners season had turned sour and the market started dropping, I think I would have written off the $500 rather than trying to construct a $10k hedge. I couldn't have written off $5k, but I wouldn't have bet that much to start with.

I estimate the current market value of my Mariners ticket is about $3k, and that altogether I own futures with a market value around $5k. Looking forward to the postseason, I will be definitely be considering ways to reduce my variance at a reasonable cost. I just have to decide what "reasonable" means.

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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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