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As a preview of our coverage, here is the second piece in a series of foundational columns. Our goal with this series is to not only educate on some basic betting principles but also to explore how these concepts can be used to our advantage in the DFS context.
What is Hedging?
Hedging a bet can have a lot of different variations and can be used in all different situations, but the basic definition is when you place different bets on multiple outcomes to either reduce your risk or lock in a guaranteed profit. One of the most common questions I get on betting in our premium Slack chat at Awesemo.com is what a person should do if they want to try and lock in profits on a future bet where they can potentially hedge and guarantee a return.
I want to be clear that in most circumstances you are better off not hedging, as you will give up some slight value, but each situation depends on risk tolerance. Regardless, it is important to know how to hedge correctly if you choose to go that route.
Let’s look at an example to paint a clearer picture where hedging can come into play.
Say last year you decided to bet the Rams to win the Super Bowl before the season at 10/1 odds, meaning for every dollar you bet you receive $10 back. A $100 bet would return $1,000 and come February, the Rams are in the Big Game and your ticket is still alive. They are a one-point favorite over the Chiefs and as it stands now. If the Rams win, you win $1,000, and if the Chiefs win, you lose the bet for minus $100. There is an opportunity here to guarantee profits by betting the Chiefs if you are looking to lower your risk and secure a win regardless.
Rams future bet 10/1 : $100 to win $1,000
Chiefs bet +1 : $440 to win $400
If the Rams win, you win your $1,000 future minus the Chiefs bet of $440, leaving you with $560 profit. If the Chiefs win, you win your bet for $400 minus the Rams future of $100 leaving you with $300 profit. As you can see, in this scenario, you are guaranteed a minimum of $300 profit and a maximum of $560 instead of a minus $100 to $1,000 range if you kept the original bet. The amount bet on the Chiefs can vary depending on how much variance you want in your potential winnings.
Why does Hedging Matter?
Understanding how hedging works is important even if the majority of the time you choose to let your original bet ride and not lock in any profit. If you are betting futures or other bets where you may be holding tickets with massive odds and potential payoffs, hedging is something that you should know how to do properly, as it can guarantee you lock in some profit regardless of whether or not you fully connect on that big future bet. There are other types of hedging where you can actually hit both bets known as “middles”, and we will get into that as we expand upon this topic in the future.
How Can We Use Hedging in DFS?
Hedging is more prevalent in the sports betting world when trying to lock in profit from a future bet that you are close to hitting and don’t want to let it ride. However, hedging can also take on forms within DFS even if it’s not as correlated as a straight hedge like the one described above. In DFS, there are situations where you may be fading a guy more based on ownership or just do not want the volatility associated with a given player.
This happens in golf a lot where I think a guy has a decent top-five or win equity, but the missed cut equity and ownership make him a guy I’m not really looking to target. Sometimes in that situation, I will hedge where I bet that golfer to win, but do not use him in DFS so that if we do get that ceiling showing, I get paid off, and if his volatility shows up, I’m ahead of the game in DFS and haven’t lost a ton due to just making a future bet. I will elaborate more on this concept in the accompanying video to this article so make sure to check that out as well.
** Don’t forget to check out the from A to B daily shows throughout the week where we touch on various topics from NFL Showdowns, Week in Review, and plenty of PGA tour golf breakdowns. You can find all my shows during the week on the Awesemo_Com YouTube homepage. **
If you have any questions find me in the soon to launch sports betting channel on the Awesemo.com premium Slack chat or @JazzrazDFS on twitter.