Wednesday, October 19, 2011

The Hedge

On Labor Day weekend, I happened to be in Las Vegas with a bunch of close friends. At the time, the Cardinals were seven games off the division lead and further out of the Wildcard hunt. The MGM Sportsbook listed the Cardinals at 125:1 to win the World Series on that Saturday. Seeing some opportunity, I put $10 on St. Louis winning it all. (In truth, I went to the ‘book with $50 in hand looking for 200:1 odds. When I didn’t get those long odds, I toned done my wager substantially. Slapping self in face.)

Now, a month and a half later, the Cardinals are in the World Series, and I am left wondering how I can hedge myself. After all, the Cardinals are now 1.35:1 to complete the unthinkable.

The way I see it, I have a few options:

1- Let it ride. The Cardinals have done the near impossible just to get here. If they win four of the next seven games, I get $1,260 ($1,250 for the win + my original $10 bet)

2- Bet the Rangers to win the series (-155). Unfortunately as the favorites, the payoff will be small. A $600 hedge, would only pay out $387. So either I get $660 if the Cards win or $387 if the Rangers win. That’s either a 66x or 38x return on investment. Not too shabby.

3- Take the Rangers +1.5 runs per game in each game they are ‘dogs. Upside: the Rangers could lose and cover meaning I could win both sides. Downside: too expensive as I would need to bet $215 to win $100. Also, these odds are only available when the Cardinals are favored which might only happen in Game 1 with Carpenter on the hill. Game 5 will be played in Texas, and I think the Rangers would be favored even in Carpenter starts.

4- Take the Rangers straight up in every game of the series. The bet here would be that Texas will not be a bigger favorite than -155 (odds of them winning the series) in any individual game. Let’s go through the scenarios using $150 a game wager. If the Rangers sweep, I would win more than $407 as long as the individual game odds stay below -155. If the Cardinals sweep, I’ll have thrown away $600, just as I would have in Option 2. If the series lasts longer than 4 games, it will mean that I have won at least one of these hedges meaning I can re-hedge.

5- A combination of Options 4 and 5. Take the Rangers +1.5 when they are ‘dogs and take them straight up when they are favored.

6- Something else. I’m all ears for suggestions and Would love to hear from some wise guys and/or quant guys for comments or suggestions. What am I missing? What would you do?

For what it’s worth, I’m going with option 4 unless someone can convince me otherwise.

2 comments:

  1. I would wait until game 3 to hedge. You get a hot cardinals team at home for 2 games. If they are 2-0 you let it ride, if you are 1-1 or 0-2 then you hedge. Risk it for the biscuit.

    ~Rook

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  2. Looks like that would have been the smart move. Nice call Rook.

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