Hedging Sports Bets a Risk Management Strategy

BY markoh June 19, 2023

Hedging minimizes risk or ensures a certain profit level when engaging in sports betting. It is a risk management strategy to reduce losses and maintain a stable bankroll.

Although hedging bets may appear complex, the concept is straightforward. Essentially, hedging involves placing a new wager on an alternative outcome to the one initially bet upon. This approach can guarantee a profit regardless of which outcome ultimately transpires or decrease the potential loss associated with the original bet. Finally, the objective is always to limit potential losses.

When Should You Hedge Your Bets? 

When doing so allows you to ensure profit betting on a sporting event. To mitigate/minimize your losses and reduce bankroll exposure after placing a riskier bet. When you’ve made an accidental bet.

 

 

 

Easy-to-Understand Hedging Examples

Let’s explore some straightforward examples of hedging to grasp the concept better. Essentially, hedging involves taking measures to reduce the risk of unfavorable outcomes in the future. One example is car insurance, which is a hedge for car owners. While it is mandatory in most US states, let’s imagine a scenario where it is optional. 

Despite the expense, many individuals would still purchase car insurance voluntarily. 

This is because they prefer to bear the regular, predictable cost of insurance to safeguard themselves from the potentially enormous financial loss resulting from a car accident. 

By paying insurance premiums, individuals make ongoing small bets to protect themselves from the relatively unlikely but financially devastating event of being involved in an accident.

So, how does this connect to sports betting?

Suppose you make a substantial bet with unfavorable odds and subsequently realize that you have taken on an excessively high level of financial risk, akin to the potential consequences of a car accident. In such a situation, you can mitigate this risk by placing additional bets on opposing outcomes. These counteractive bets serve as your insurance policy or hedge, reducing your exposure to potential losses.

What Does Hedging Mean for Sports Betting?

There are various scenarios where employing a suitable hedge can ensure a profitable outcome. Let’s delve into a specific example:

 

 

 

 

 

Profiting on Playoff Futures with Hedging

In playoff futures betting, hedging can be a reliable strategy to guarantee a profit. Let’s consider a hockey playoff series between the Pittsburgh Penguins and the Columbus Blue Jackets. As a bettor, you favor the underdog Blue Jackets and place a bet on them at +400 odds.

Suppose the Blue Jackets take a 2-0 lead and will play games 3 and 4 at home. As a result, the Penguins’ odds of winning the series significantly lengthen, shifting to -100. At this point, you have an opportunity to hedge your initial bet. By placing a $200 bet on the Penguins to win the series, you ensure a profit regardless of the outcome.

If the Blue Jackets win, you will receive a $400 payout (minus the $200 wagered on the Penguins). This guarantees you a profit of $200.

If the Penguins win, you will receive a $200 payout (losing the $100 wagered on the Blue Jackets). You would still secure a profit of $100.

Alternatively, you could place a $100 bet on the Penguins to limit potential losses while maximizing your return if the Blue Jackets win. In this scenario, a Blue Jackets series victory would result in a $400 payout (minus the $100 wagered on the Penguins). Although it wouldn’t guarantee a profit, it wouldn’t significantly diminish your potential profits.

As a bettor, assessing your comfort level and risk tolerance in such situations is essential. If you are confident in the Blue Jackets’ victory and willing to take risks, hedging may be optional. However, hedging becomes the wiser choice if you prefer a more cautious approach to protect your bankroll.

 

Hedging with Championship Futures

Futures wagers provide an excellent opportunity to secure profits through hedging. Let’s examine an example using NFL futures: After Super Bowl 51 in 2017, the Philadelphia Eagles opened with +5100 odds. Suppose you placed a $100 wager on the Eagles on February 5th, 2017, due to your exceptional sports knowledge or loyalty to the team. As Super Bowl 52 approached, your potential profit stood at $5,100.

On the other hand, the New England Patriots were heavily favored, with a -200 moneyline the night before Super Bowl 52. If you had wagered $2,000 on the Patriots, you would have been guaranteed a profit of $900, regardless of the outcome ($1,000 gain minus the $100 wagered on the Eagles). If the Eagles won, you would have secured a guaranteed profit of $3,100.

Ultimately, in either scenario, you would have ensured a substantial profit. In this specific case, the Eagles emerged as the champions of Super Bowl 52.

Hedging Parlays

Bettors often use hedging strategies to guarantee profits when placing parlay bets. Let’s consider a scenario where you have a parlay bet on the moneyline of four Sunday football games. It is now 6 PM, and three of the four teams in your parlay have already covered their respective games. The final match, Seattle vs. Philadelphia, will kick off within the hour.

At this stage, you can place a separate bet against the team you initially bet on in your parlay. For instance, if you bet on Seattle in your parlay, you can wager on Philadelphia as a hedge. If Seattle wins, you would hit your parlay and make a profit while deducting the amount you wagered on Philadelphia. On the other hand, if Philadelphia succeeds, you would still profit from your hedge bet and only lose your parlay wager.

The specific amount you would need to wager on Philadelphia to secure a profit depends on the moneyline odds associated with your parlay.

Hedging to Mitigate Your Losses

Hedging can mitigate potential losses when you lose confidence in your initial wager. It acts as an insurance policy by betting on the opposite outcome.

Let’s consider a situation where you initially bet $100 on the Vancouver Canucks to cover the spread of -1.5 at (-110) against the Arizona Coyotes. However, as the game approaches Saturday night, the Canucks have suffered significant setbacks, such as critical player injuries and the starting goalie’s poor performance. These developments have led to losing faith in the Canucks’ ability to cover the spread, and you are no longer comfortable placing a $100 bet on this outcome.

In such a scenario, you have two options for hedging your bets. Firstly, you could wager $100 on the Coyotes to cover the spread, ensuring a guaranteed $90 win while only losing $10 due to the juice.

Alternatively, you can opt for a partial hedge bet. This involves reducing the size of your bet on the Canucks while keeping your initial $100 bet open. For instance, you could wager $77 on the Coyotes.

If the Canucks cover the spread, you would still secure a $13 profit, earning $90 in profit (minus the $77 bet on the Coyotes). 

However, if the Coyotes cover the spread, you would lose $30. In this scenario, you would win $70 (minus the $100 wager on the Canucks).

You can choose numerous combinations for your hedges, depending on the level of exposure you feel comfortable with.

Taking Back an Accidental Bet

While uncommon, there are instances where accidental bets are placed, and unfortunately, they cannot be rescinded. In such situations, hedging can provide a means to reduce your exposure instantly.

If you accidentally place a bet and believe it will not be successful, hedging allows you to mitigate your potential losses. By betting on the opposite outcome, you only sacrifice the sportsbook’s juice, typically a small percentage of the wager. For instance, let’s say you mistakenly wagered on the total score of a Knicks vs. Nets game to be over 201 at (-110) odds. You can place the same amount on the under to hedge your bet. In doing so, you will incur a small loss regardless of the actual outcome of the game, but it helps limit the potential impact of the accidental bet.

Hedging Formulas

Determining the appropriate timing for hedging can be a subjective and uncertain decision. However, two formulas can assist you in calculating how to minimize potential losses and maximize profits through hedging.

Formula for Preventing a Loss by Hedging

The formula for hedging to prevent loss involves manipulating the profit calculation formula based on decimal odds. To avoid a loss, divide your original stake by the difference between the hedge decimal odds and one

For instance, let’s consider an example where you initially bet $100 on the Jacksonville Jaguars to win the Super Bowl at odds of (+1000) early in the season. However, they face the New England Patriots in the Super Bowl, who are listed at (-200) odds. You have decided to ensure that you at least recoup your initial investment.

To apply the hedging formula, you must first convert the American odds to decimal odds. In this case, the Patriots’ odds of beating the Jaguars are 1.50.

Initial Stake: $100 

Hedge Decimal Odds: 1.50

By dividing $100 by 1.50, you get $200. If you bet $200 on the Patriots team, you will receive your entire initial stake back, regardless of the game’s outcome. If the Patriots win, you will secure $100, which covers your initial stake in the Jaguars.

Moreover, if the Jaguars win, you still have the potential to make a significant profit.

Formula to Maximize Winnings with Hedging

This formula may be slightly more complex, but it can save you time when you find yourself in a favorable hedging situation. Here is the formula:

X = (P + W1) / O

P: The profit you would earn from your initial wager 

W1: The amount of your initial wager 

O: The decimal odds of the hedge bet

To calculate your potential winnings, subtract X (the amount you place on the hedge bet) from P.

P – X = Your guaranteed payout

For example, you placed a $100 bet on a tennis future bet with +800 odds. On the eve of the penultimate game, the opposing player is available at -133 (1.75) odds.

Applying the formula:

P = 800 

W1 = 100 

O = 1.75

 

X = (800 + 100) / 1.75 

X = 514.28

By also betting $514.28 on the opposing player, you would win $285.72 regardless of the outcome. This demonstrates the practical nature of hedging.

Hedging is Not Line Shopping (Arbitrage)

Once you clearly understand hedging and its role in your sports betting strategy, it’s crucial to differentiate it from line shopping. Hedging is not about searching for the best odds or considering price differences among online sportsbooks. The concept of hedging is distinct and unrelated to finding the most favorable odds for a particular bet.

Hedging is Different for Every Situation

No definitive rule or formula determines when to hedge a bet or when to refrain from doing so. Hedging inherently reduces potential profits, regardless of the approach taken.

The decision to hedge or not is a perpetual debate within the sports betting community, from online forums to the most accomplished and knowledgeable bettors in history.

Our recommendation is to familiarize yourself with the advantages and disadvantages of bet-hedging and apply that knowledge to your wagers. The appropriateness of hedging depends on the specific situation, and each bettor has unique objectives, bankroll size, and risk tolerance.

Ready for More Sports Betting Strategy?

Risk management is an important component of a well-rounded sports betting strategy. However, there are other aspects to consider. If you are seeking a more strategic and calculated approach to sports betting, we recommend exploring the other articles in our sports betting strategy series. These resources provide valuable insights and guidance on various aspects of sports betting, helping you develop a comprehensive approach to enhance your overall betting strategy.

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