After hitting the 6th wager of a 7 wager parlay, people always ask for advice on whether or not they should hedge this parlay. The people giving the advice always argue both ways. One side reasons that you should always take a profit, while the other asks why you made that initial wager in the first place when you plan to go against it now. If you're in this for the long haul, then the answer is clear, you have to hedge.
Going strictly on dollars and cents, in the long run, hedging vs. not hedging should theoretically even out. However, hedging greatly diminishes the variance a handicapper experiences. Plus, by not hedging, the handicapper is actually placing wagers that are highly above the standard amount of "units" they typically wager. Let me explain:
Let's say a capper has placed $10 on a 4 team parlay that pays $200. The first 3 wagers of this parlay have hit. Now, the capper can bet the other side on the 4th game for 2.00, or +100. He decides to hedge and lays $100 at 2.00, or +100, and regardless of what side wins, he collects $200. He has shelled out the initial $10 wager and the $100 hedge, for a total of $110, meaning that he has profited $90. The capper now has an additional $90 in his pocket and doesn't have to sweat out this parlay. His winnings of $90, though less than the potential $190 profit, are certain, and he protects himself from a $10 loss.
Now, let's say the capper doesn't hedge this parlay. His opportunity cost of not hedging is the $90 profit he is forgoing. So, essentially, the capper is now risking the $90 he has in his pocket, to win $200. Yes, you can say that the capper's exposure on this wager is $10, but when he is faced with the opportunity to hedge, then he is automatically foregoing a guaranteed profit in order to win more. This is how gambling gets dangerous, when you start wagering above your means. Here are the situations:
1. Hedge: $200 guaranteed payout, $90 guaranteed profit
2. Don't Hedge: Risking your $90 guaranteed profit for a payout of $200.
- You are essentially making a straight wager of $100 ($10 initial + $90 profit) to win $200.
The smart play here is to take your $90 off the table and not be forced to wager it on the 4th leg of the parlay, because this is essentially what you are doing. The capper, whose "units" are measured in $10, is now wagering $100 to win $200. He is wagering 10 units on a single play, I doubt a capper would ever do this otherwise. You can argue that you have to look at the parlay as one large wager, but the reality is that the capper has the opportunity to lock in a profit, but forgoes taking that profit if he doesn't hedge.
What makes me cringe is the Deal or No Deal gameshow. On one episode, a woman got down to the final two briefcases. I can't recall the numbers exactly, but let's say she was offered $500,000 for her briefcase while there final ones held $1 and $1,000,000. By saying "No Deal", she gave up her $500,000 in order to go for the $1,000,000. She had $500,000 in her pocket, but she decided to wager her $500,000 to go for the $1,000,000 on a coin flip. There's no EV+ on this play at all. This is the equivalent to laying $500,000 on black to win $1,000,000, for someone one probably made $50,000 a year. I don't have to go on arguing how ridiculous it was for this woman to go for a $500,000 coin flip.
The lesson is, never leave any money on the table. When you've created "value" in your parlay by hitting the first few legs, you should always hedge. This goes for futures as well. Sure, if you like the thrill of gambling, you could let it ride and hope for the big payout, but, your bankroll will experience a lot more variance, and with enough variance, you can see your bankroll dwindle down to $0 before you have a chance to go on a hot streak.
All feedback is welcome, I expect a lot of it.
Going strictly on dollars and cents, in the long run, hedging vs. not hedging should theoretically even out. However, hedging greatly diminishes the variance a handicapper experiences. Plus, by not hedging, the handicapper is actually placing wagers that are highly above the standard amount of "units" they typically wager. Let me explain:
Let's say a capper has placed $10 on a 4 team parlay that pays $200. The first 3 wagers of this parlay have hit. Now, the capper can bet the other side on the 4th game for 2.00, or +100. He decides to hedge and lays $100 at 2.00, or +100, and regardless of what side wins, he collects $200. He has shelled out the initial $10 wager and the $100 hedge, for a total of $110, meaning that he has profited $90. The capper now has an additional $90 in his pocket and doesn't have to sweat out this parlay. His winnings of $90, though less than the potential $190 profit, are certain, and he protects himself from a $10 loss.
Now, let's say the capper doesn't hedge this parlay. His opportunity cost of not hedging is the $90 profit he is forgoing. So, essentially, the capper is now risking the $90 he has in his pocket, to win $200. Yes, you can say that the capper's exposure on this wager is $10, but when he is faced with the opportunity to hedge, then he is automatically foregoing a guaranteed profit in order to win more. This is how gambling gets dangerous, when you start wagering above your means. Here are the situations:
1. Hedge: $200 guaranteed payout, $90 guaranteed profit
2. Don't Hedge: Risking your $90 guaranteed profit for a payout of $200.
- You are essentially making a straight wager of $100 ($10 initial + $90 profit) to win $200.
The smart play here is to take your $90 off the table and not be forced to wager it on the 4th leg of the parlay, because this is essentially what you are doing. The capper, whose "units" are measured in $10, is now wagering $100 to win $200. He is wagering 10 units on a single play, I doubt a capper would ever do this otherwise. You can argue that you have to look at the parlay as one large wager, but the reality is that the capper has the opportunity to lock in a profit, but forgoes taking that profit if he doesn't hedge.
What makes me cringe is the Deal or No Deal gameshow. On one episode, a woman got down to the final two briefcases. I can't recall the numbers exactly, but let's say she was offered $500,000 for her briefcase while there final ones held $1 and $1,000,000. By saying "No Deal", she gave up her $500,000 in order to go for the $1,000,000. She had $500,000 in her pocket, but she decided to wager her $500,000 to go for the $1,000,000 on a coin flip. There's no EV+ on this play at all. This is the equivalent to laying $500,000 on black to win $1,000,000, for someone one probably made $50,000 a year. I don't have to go on arguing how ridiculous it was for this woman to go for a $500,000 coin flip.
The lesson is, never leave any money on the table. When you've created "value" in your parlay by hitting the first few legs, you should always hedge. This goes for futures as well. Sure, if you like the thrill of gambling, you could let it ride and hope for the big payout, but, your bankroll will experience a lot more variance, and with enough variance, you can see your bankroll dwindle down to $0 before you have a chance to go on a hot streak.
All feedback is welcome, I expect a lot of it.
