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December-03-2008,
The Complete Square's Guide to Sports Wagering: Hedging...By Jay Graziani

Hedging is a strategy used in financial markets to reduce risk. Wikipedia describes a hedge as "a position established in one market in an attempt to offset exposure to the price risk of an equal but opposite obligation or position in another market".

Hedging is identical in the world of sports betting. Most commonly, hedging involves placing a bet against a team you need to win in order to close out a large parlay or long shot future. It is also used in live betting, with halftime lines, and, in a sense, with middles and scalps.

Hedging is nearly always a mistake from a profit perspective. If it is a hedge to mitigate risk, such as hedging the last leg of a parlay when all the other legs have already come in, you are giving back some of your potential profit to the sportsbook. In turn, you eliminate the risk of walking away empty handed if your parlay ticket doesn't cash. But why pay the extra "juice" on a hedge bet at all? You could have just played a smaller parlay to begin with (or bet less on the future wager, etc.), eliminating your need for a hedge.

This is a symptom of betting too large and then being unable to stomach the thought of losing when your bet was "almost there". If hedging in this way helps you sleep at night, fine, but keep in mind that it almost always hurts your bottom line.

Middles and scalps are both forms of hedges (at least when one side is taken as a lead). While both middles and scalps can be positive expected value (+EV) in combination, it's generally the case that one side is higher EV than the other. If you can close a scalp or middle at currently available lines, it means that the wager you are already holding is significantly better than the current odds. You can probably assume the earlier bet is the better bet, and holds most, if not all, of the EV. Why dilute it by betting into a stronger, more recent line?

For example, if you managed to grab an early line (or beat a steam move) and hold a Cowboys -2 ticket when the line immediately before kickoff is Cowboys -4, you have a great middle by taking the other side at +4. But how much of that EV is from the original bet, now 2 full points (including a key number) away from the current line?

You're likely just diluting the value of your original bet by closing out the middle with a 50%-type bet. So even in cases of guaranteed profit (like scalping) you are usually just giving away some of your expected profit to lock up the "guarantee" instead of letting the better bet play itself out.

Even though hedging is more often than not -EV, there are situations where hedging may make sense. You may have made a mistake and overextended yourself on the first bet, and now have too much at risk. In this case, you may be willing to give up a little potential profit in order to keep your bankroll intact and avoid a devastating loss. You may also have intentionally overbet in anticipation of a middle or scalp opportunity. You can bet more on intentional middles or scalps since you intend to hedge, meaning less of your bankroll will ultimately be at risk.

King Yao authored an in-depth discussion of hedging in a series of articles originally appearing on Two Plus Two Internet Magazine, and later in his book "Weighing the Odds in Sports Betting". He identified four situations in which it is valid to hedge:

1. The risk of the original wager is too great
2. The hedge has positive or zero EV (expected value)
3. The hedge was pre-planned as part of the original wager
4. The hedge releases capital and increases the opportunity to make future positive EV bets

Bettors who hedge too frequently (i.e. anytime other than the four situations listed above) can fall into the very bad habit of giving away their (potential) profits every time they are ahead. When they gain equity on their bet, they sell it off too cheaply. Unfortunately, the same bettors are unable to hedge off the bets that lose value early. It doesn't take Einstein to figure out that if you keep all your losers, and sell off all your winners on the cheap (by chasing middle and scalp "opportunities"), you're soon going to end up buried.

Hedging is particularly popular using second-half lines. Unfortunately, it is also costly to many bettors who don't understand the subtleties of hedging. These halftime plays are not true "middles" as the original ticket already has a higher probability of winning. Your original ticket may be a 65% favorite to win that you are hedging with a 50% coinflip bet.

A player who took Team A +4 before tip-off and watches them walk into the locker room up 7 at halftime will find the 2nd half line of Team B -4 very tempting. He can eliminate all of his downside and end up with a large 7-point middle shot. The chance of getting a 20-1 payout seems great. But in reality the existing bet of Team A +4 holds most, if not all, of the value. The halftime line will often be negative EV, especially after it has "settled in" after the first few minutes of betting action. In essence, you are selling part of your great-looking full game bet back to the sportsbook and paying some juice to boot. Not a smart move in most cases.

In general, hedging is a bad idea. Hedging means you are sacrificing profit in return for reduced risk of losing. Risk is usually proportional to reward, and regularly eliminating risk through hedging means you are eroding your bottom line. Sports betting is ultimately about taking risks, so if you are unable or unwilling to stomach the thought of losing, it may be time to find a less nerve-rattling hobby, or at least bet smaller so you don't give all your hard earned edges away through poor hedging.

"The Complete Square's Guide to Sports Wagering" is a recurring series aimed at educating novice sports bettors. The next article will cover basic math for sports handicappers.

12-03-08
Jay Graziani
MajorWager.com
graziani@majorwager.com

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