Following careful analysis of the next race, your assessment
of the odds is 4/1(5.00) - a 20% edge on the market price of 5/1 (6.00) - with respect
to your selection. Flushed with confidence, you place a $250 (4%) win bet on InTheMoney at 5/1 (6.00). Time to sit
back and wait for the profit to roll in? Maybe!
Consider for a moment - what is the current market value of your investment?. When you place the initial trade, its market value is $250=[($250*6.00)*(1/6.00)]. Roll tape and the market turns in-play as InTheMoney sets the early pace with measured fractions. Turning into the stretch it looks an even-money chance at worst to win. Freeze frame and consider once again - what is the current market value of your investment?. Assuming the market is now efficient with respect to InTheMoney’s win probability, the updated market value is $750=[(($250*6.00)*(1/2.00)]. In other words, at this point in the race, you have already won $500=[$750-$250]. Fast forward to the finish-line and InTheMoney is beaten by a late closer, JustInTime. Now, the really interesting question is - how much have you lost? If you had no choice but to only back your selection before the race, then you have lost $250. But, if you also had the option in-play to hedge the win bet at even-money, then you lost $750! (see Weighing the Odds in Sports Betting (Ch.4)).
In summary, no trade is complete without both a back and a lay bet or, in other terminology, an opening and a closing position.
Consider for a moment - what is the current market value of your investment?. When you place the initial trade, its market value is $250=[($250*6.00)*(1/6.00)]. Roll tape and the market turns in-play as InTheMoney sets the early pace with measured fractions. Turning into the stretch it looks an even-money chance at worst to win. Freeze frame and consider once again - what is the current market value of your investment?. Assuming the market is now efficient with respect to InTheMoney’s win probability, the updated market value is $750=[(($250*6.00)*(1/2.00)]. In other words, at this point in the race, you have already won $500=[$750-$250]. Fast forward to the finish-line and InTheMoney is beaten by a late closer, JustInTime. Now, the really interesting question is - how much have you lost? If you had no choice but to only back your selection before the race, then you have lost $250. But, if you also had the option in-play to hedge the win bet at even-money, then you lost $750! (see Weighing the Odds in Sports Betting (Ch.4)).
In summary, no trade is complete without both a back and a lay bet or, in other terminology, an opening and a closing position.
Using our knowledge of time averages, we can select a lay
price and calculate a hedging stake to maximize our median bankroll over time.