Hedging Your Sports Bets as a Risk Management Strategy
Hedging is a method to either reduce your risk or guarantee a profit when betting on sports. Fundamentally, hedging is a risk management strategy for when you place bets.
It’s not a complicated strategy either; hedging merely involves betting on a different result than your original wager. This secures profit irrespective of either bet outcome, or reduces exposure on your initial bet, thus limiting potential losses.
There are three scenarios where bettors hedge their bets:
- To guarantee profit
- To mitigate your losses and reduce bankroll exposure
- When you’ve made an accidental bet
Easy-to-Understand Hedging Examples
The most common example of a hedge is car insurance. Mandatory in every US state (except New Hampshire), car insurance is a hedge which protects car owners against the financial burdens of getting in a car crash. It’s a way to protect you, your car, and the possible damage you could inflict on other cars and drivers from the inherent risk incurred by driving.
Just because car insurance is mandated by nearly every state, however, doesn’t mean it’s free. It costs a monthly rate, and few drivers get in car accidents often.
Whether monthly or annually, insurance comes at a financial cost, even if it isn’t necessary. It’s entirely possible that you could drive your entire life and never actually need insurance.
Despite this, many people would rather have the option of the predictable cost of insurance over the massive financial loss of getting in a car accident. In essence, you’re making a recurring small bet with your insurance, and it protects you from the low probability (but high cost) event of getting in an accident.
You’ve probably heard of people who “hedge their bets” in the stock market. In finance, a hedge is an investment in an offsetting position of related security, to lessen their potential losses. An example might be purchasing an opposing futures contract that you could execute if the price of the asset you were holding declined.
What Does Hedging Mean for Sports Betting?
There’s a lot of different scenarios where you can secure a profit by exercising the appropriate hedge. We’ll take you through some specific examples below.
Profiting on Playoff Futures with Hedging
If you hedge your bets carefully, betting on a playoff series is an easy way to guarantee a profit.
For example, let’s say the Pittsburgh Penguins are playing the Columbus Blue Jackets in the first round of the NHL playoffs. You liked the Blue Jackets’ chances, so you bet on them as the heavy underdog at +400.
Say the Blue Jackets went up 2-0, and were heading home to play games 3 and 4. As a result, Pittsburgh’s series odds became a lot longer than they initially opened, moving to -100. At this point, you could place a $200 bet on the Penguins to win the series, and you’d be guaranteed a profit no matter what.
If the Blue Jackets won, you’d win $400 on top of your stake (minus the $200 you wagered on the Penguins). You’d be guaranteed at least $200 in profit!
If the Penguins won, you’d win $200 (losing the $100 you wagered on the Columbus Blue Jackets). You’d still be guaranteed a profit of $100!
Of course, you could just wager $100 on the Penguins, and by doing so, secure yourself from any potential losses while maximizing your return if the Columbus Blue Jackets won. If the Jackets managed to win the series, you’d win $400 (minus the $100 you bet on the Penguins). It wouldn’t secure you a profit, but you wouldn’t cut into your potential profits to a significant degree either.
As a bettor, it’s up to you to decide what you’re comfortable with in this scenario. If you’re a risk taker, and entirely confident in a Blue Jackets victory, you might not even want to hedge at all. If you’re conservatively-inclined and are looking to protect your bankroll, hedging is the most prudent move.
Hedging with Championship Futures
Futures wagers are a great way to lock in profits with hedging.
Let’s look at NFL futures. The Eagles opened at +5100 the day after Super Bowl 51 (2017). If you wagered $100 on them on February 5th, 2017, (either out of sheer sports genius or team loyalty), you were looking at a potential profit of $5,100 on the eve of Super Bowl 52.
Meanwhile, the Patriots were -200 on the moneyline the night before Super Bowl 52. If you had wagered $2,000 on the Patriots, you’d have stood to win $900, no matter what ($1,000 profit minus the $100 you wagered on the Eagles.) Had the Eagles won, you’d have been guaranteed $3,100.
In either scenario, you’d be guaranteed a significant profit. Of course, the Eagles ended up winning Super Bowl 52.
Many bettors hedge to ensure guaranteed profits when they place parlay bets.
Say that you’ve placed a parlay on the moneyline of four Sunday football games. Its 6PM and three out of the four teams have covered. The final game in your parlay is going to kick off within the hour.
At this point, you can wager against the team you bet on in your parlay. If the last game in your parlay was Seattle vs. Philadelphia and you bet on Seattle in your parlay, you could place a separate bet on Philadelphia to secure a profit. If Seattle wins, you’ll hit your parlay and profit, minus whatever you wagered on Philadelphia. If Philadelphia wins, you’ll profit and only lose your parlay wager.
Of course, the amount you’d need to wager in order to secure a profit would depend on the specifics of the moneyline odds in your parlay.
Hedging to Mitigate Your Losses
If you’ve lost confidence in your initial wager being successful, hedging can reduce your exposure to losses. Betting on the opposite outcome to your original wager acts as an insurance policy.
Say that, earlier in the week, you bet $100 on the Canucks to cover the spread of -1.5 at (-110) to beat the Coyotes. However, by the time Saturday night rolls around, the Canucks lost three key players to injury, and their starting goalie was mired in a horrible slump.
These events would understandably cause you to lose faith in the Canucks’ ability to cover the spread. As such, you’re no longer comfortable with placing $100 on this outcome.
You could hedge your bets in two different ways. Let’s say the opposing wager, the Coyotes at +1.5, is listed at (-110). You can wager $100 on the Coyotes to cover the spread, in which case you’d be guaranteed to win $90. You’d only lose the $10 on the juice.
Additionally, you can make a partial hedge bet. This way, you can reduce the overall size of your bet on the Canucks. By wagering $77 on the Coyotes (with your initial $100 bet on the Canucks still).
If the Canucks covered in this scenario, you’d still come away with a $13 profit, as you’d net 90$ in profit, minus the $77 you bet on the Coyotes. If the Coyotes covered, you’d lose $30. You’d win $70 while losing the $100 you wagered on the Canucks.
There are tons of combinations you can choose for your hedges, depending on the exposure you’re comfortable with.
Taking Back an Accidental Bet
While it’s not very common, we’ve heard many stories of accidental bets being placed. Once you’ve staked a wager, it can’t be rescinded.
So if you’ve made a bet by accident and don’t believe it’ll be successful, hedging allows you to reduce your exposure instantly. Just bet on the opposite outcome, and all you sacrifice is the sportsbooks’ juice.
For example, say you mistakenly wagered on the total of a Knicks vs. Nets game to be over 201 (-110). Simply bet the same amount on the under, and you’ll only incur a small loss either way.
Deciding when to hedge is inherently ambiguous. However, these are two formulas that can help you calculate how to prevent a loss and secure maximum profit via hedging.
Formula for Preventing a Loss by Hedging
The formula for hedging to prevent loss is simple. Just divide your initial stake by the odds of the opposing bet used to hedge.
(Initial Stake)/(Odds of Opposing Wager) = Smallest $ to Guarantee Your Money Back
For example, you bet $100 on the Jaguars to win the Superbowl at (+1000) early in the season. However, they’re up against the Patriots in the Super Bowl. The Patriots are listed at (-143). You’ve decided you want to make sure you guarantee to make your money back.
You’d need to convert moneyline odds to decimal odds first before you could make the conversion.
Initial Stake = 100
Patriots Odds to Beat the Jaguars = 1.70
100/1.70 = 58.82.
If you bet 58.82 on the Patriots, you will receive all of your money back, no matter the outcome. A Patriots victory secures you $100, covering your initial stake on the Jaguars.
Plus, you still stand to profit immensely should the Jaguars win.
Formula for Winning the Maximum Amount Possible with Hedging
This formula is slightly more complicated than the last, but will ultimately save you time if you ever find yourself in an advantageous hedging situation.
The formula is as follows:
X = (p + w1) / O
P = Profit you stand to acquire on your first wager
W1 = The $ amount of your first wager
O = Decimal odds of the wager you are using as a hedge
To calculate how much you’re going to win, simply subtract x (the amount you placed on the hedge) from P.
P – x = Your Guaranteed Payout
Say you place $100 on a Tennis futures bet, with +800 Odds. On the eve of the penultimate game of the tournament, the other player is available at -133 (1.75) odds.
The formula would apply as follows
P = 800
W1 = 100
O = 1.75
X = (800+100) / (1.75)
X = 514.28
800-514.28 = 285.72
If you also bet $514.28 on the opposing player, you’d win $285.72 no matter what. That’s the beauty of hedging!
Hedging is Not Line Shopping (Arbitrage)
Now that you’re confident about hedging and know how to integrate it into your sports betting strategy it’s important to remember what hedging is not. Hedging is not line shopping. It has absolutely nothing to do with searching for the best odds and trying to exploit discrepancies in price between online sportsbook betting markets.
The main point of hedging is to supplement your existing wagers. It’s used to change your position by betting on other, opposing outcomes.
Hedging is Different for Every Situation
There’s no magic formula to dictate when you should hedge your bet, or when you should abstain from a hedge. Hedging inherently cuts into your profit margins, no matter how you slice it.
This is a never-ending debate in the sports betting community, extending all the way from internet forums to the most successful sharps in sports betting history.
Our best advice? Get comfortable with the different advantages and disadvantages of hedging a bet, and apply this knowledge to your own bets. The suitability of hedges vary based on the situation, and every bettor has their own unique goals, bankroll, and risk tolerance.