There are some of you out there that have a futures ticket that will be decided tonight. The Warriors and Cavaliers were at the top of the futures board all season long so you might not have a huge payday coming, but there is still a question about hedging. Should you hedge at all? Should you let it ride? Rather than making a gut call, it’s better to let the math decide.
Let’s start with the Cavaliers. Maybe you took them after they were down 3-1 in the Finals and have them around 10 to 1 to win now. Let’s take a look at how the math works out. If you are having terrible flashbacks to algebra class, look away now.
x = money bet on Cleveland
y = payout if Cleveland wins
z = money to bet on Golden State moneyline tonight
We are going to make an assumption that the current moneyline is accurate and thus give the Warriors a 65% chance of winning tonight. The idea here is that you set the two possible outcomes equal to each other so you end up with this equation:
.35 (y – z) = .65 (z/2 – x)
In common terms, there is a 35% chance that you win your Cavs payout minus what you bet to hedge tonight (left side of the equation). There is a 65% chance that your payout is what you win on the Warriors moneyline minus what you have bet on the Cavs.
The equation above simplifies into this:
z = (.35*y + .65*x) / .68
Let’s say you bet $100 when the Cavs were 10 to 1. So x = 100 and y = 1000 in this scenario. Plug those in:
z = (.35*1000 + .65*100) / .68
z = 610
In this instance, you would bet $610 on the Warriors moneyline tonight to hedge your bet and lock in a profit. You can use the bold equation above for your specific situation. Remember that x is your bet on the Cavs and that y is your payout if the Cavaliers win. Another reminder that this equation is meant to lock in a profit either way. You always have the option to gamble and let it ride as well. That decision is still up to you.
Since not everyone has the same Warriors moneyline, here is a different version where you can plug in the exact line you are getting. In this case, a = Warriors moneyline that you are getting as a positive number. If you are getting Warriors -185, set a = 185.
z = (.35*y + .65*x) / (.35 + 65/a)
You can also alter the win percentages for each team. For example, if you think (or calculate) the Cavs have a 40% chance of winning, Then it would be z = (.4*y +.6*y) / (.4 + 6/a).