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Properly hedging a bet requires math, and math is annoying, but learning how and when to hedge can buy you a one-way ticket to paradise: a risk-free wager.
Why: Hedging can reduce potential losses or guarantee a certain level of profit.
How: You place a wager against the original wager. (You bet on the opposite outcome.)
When:
- Changing Circumstances: If new information emerges that changes the likelihood of your initial bet winning, hedging can be a way to protect against potential losses.
- Locking in Profits: If an earlier wager has already yielded favorable results and you want to ensure a guaranteed profit, hedging can be a way to secure that outcome.
- Reducing Risk Exposure: Use hedging when a game or event's outcome is particularly uncertain, and you want to reduce exposure to risk.
Warning: You must remember that a proper hedge requires you to bet on the opposite outcome and not just a different outcome. (In math we would say 1-originalPosition.) Let's imagine you had bet $10,000 dollars on the Knicks winning the East this season, and then you watched them get blown out by the Celtics opening night. Betting on the Celtics to win the East on day two of the NBA season is not a hedge for your huge Knicks bet. In order to hedge your Knicks bet you would need to find a bet for anyone but the Knicks to win the East (which is a hard bet to find). Betting on the Celtics to win the East would only be a true hedge against your original bet if you wait until the Eastern Conference finals matchup is set and the teams are Celtics vs. Knicks.
Examples:
2019 NBA Finals (Limiting Losses)
Original Bet
Betting for the 2019 NBA Finals opened with the Warriors favored at -290 over the Raptors.
Original Bet: Warriors for $200
Potential Payout: $268
Potential Profit: $68
Potential Loss: $200
The Situation Develops
In Game 5 Kevin Durant returns to the floor after a month long absence and tears his achilles. The Warriors win, but they will now have to finish their 3-1 comeback without KD. Money pours in on the Raptors, and you're not feeling good about the Warriors' chances.
Hedge Bet
Before Game 6 the Raptors are favored to win the championship at -325. You decide you don't feel like losing $200 and want to hedge to limit your losses and reduce your exposure.
The bad news is that you timed these bets pretty terribly and the best you can do today is limit your losses. The good news is you can save yourself around $63 with a properly sized hedge.
In this situation - your original position has deteriorated - you are looking to cash out at the best price possible. Cashing out means that your profit (or loss) is the same regardless of the outcome i.e. you have exited your position.
Let's dig into the math
There are two different equations we're working with, and I will be using profit (not payout).
Equation A: Net Profit if Original Position Wins (Warriors Win)
=Original Profit-Hedge Stake
Equation B: Net Profit if Hedge Position Wins (Raptors Win)
=Hedge Profit-Original Stake
To cash out of your original position you need to find which hedge stake allows for these two equations to be equal.
Staking $205 on the Raptors allows you to exit (or cash out) your position at the best possible price. This isn't excitng, but you saved some money and over time exiting bad positions will help minimize your losses.
Don't have time for all this? We thought not. Use our cash out calculator instead.
2024 Super Bowl (Guaranteeing Profit)
Original Bet
In July of 2023 The Kansas City Chiefs were at +600 to win the Super Bowl. This felt like free money to you.
Original Bet: Chiefs for $100
Potential Payout: $700
Potential Profit: $600
Potential Loss: $100
The Situation Develops
The Chiefs make it to the big game, but the Niners are looking strong and are actually favorites at -124. You don't necessarily want to cash out, but you would like to see some profit regardless of the outcome.
Hedge Bet
To find your cash out stake we can use the same process as above. A $387.5 hedge stake guarantees a $212.50 profit regardless of the outcome. But you think the Chiefs are going pull off the win and you want to prioritize that outcome. You can use our Risk Free Hedge Calculator in this situation.
Using our calculator you see that hedge stake range that guarantees a minimum net profit of $0 regardless of the outcome is $125.00 to $600. We can find this range by determining which hedge stake guarantees a net profit of $0 if the original position wins and which hedge stake guarantees a net profit of $0 if the hedge position wins.
You ultimately decide to stake $150 on the Niners. This way you win $450 if the Chiefs win and $20.97 if the Niners win. This is not a cash out hedge, but it does guarantee profits and you are able to maintain your position and take advantage of the Chiefs being Super Bowl underdogs.
Conclusion
Both of these examples were long term futures bets, but the principle works with any live bet. I like keeping an eye on my live bets and looking out for good opportunities to stop losses and take profit.
Hedging a bet is a practical strategy to manage risk and ensure a level of return or minimize losses, regardless of the event outcome. By understanding when and how to hedge effectively, you can make sports betting a more controlled and potentially profitable endeavor.
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