Tuesday, September 22, 2009

NFL sports betting vs Trading - an Intuitive Approach

'Observing the dots you learn statistics, Connecting the dots is where you learn perspective and bias control'

Part of my 5000 trade exercise is speculation in all markets, the nfl season provides many opportunities for sports betting, through application of simple expected value, and risk management of your bankroll. The following example is of changing odds, in reference to changing dynamics of the score in an nfl game, and how this applies to the trading markets.

This week, I observed a phenomenon in 'live-play' betting in which the odds for two nfl teams, Colts vs Miami; provided interestingly similar opportunities that a trader should be looking for, intraday.

Pre-game Odds, with pre-game data/expectations

The Miami Dolphins, playing at home were clear underdogs in the game, with Colts offering a 1.67 to 1 payout, and Dolphins holding about 2.4 to 1. (Many times pre-market, we have data flowing in, from intermarket themes, global indices, global news that will affect the futures)
As a bettor in the game, I believed that given the home field advantage of the Dolphins, their ability to control the clock, that they were probably a good value bet in this situation. However, I would prefer to have bet on the Colts, but with a odds line of closer to 1.8 - 1.9 to 1; as their performance last week wasn't as clearcut.
(Many times prices in trades will be within a range, that doesn't favour a good reward/risk setup, in which case you should stay away from making a trade either side)

Thus, at those market odds, I decided to pass against the bet, even though the dophins are offering good value, I still prefer the Colts to win the game, but would need better odds to justify the bet.

First Half Observations, with live odds changing.

The Dolphins as expected play a hard grinding, clock controlling half, limiting Manning's effectiveness on the field. By the half, the game is unexpectedly tied 13-13, and now the odds for Colts to win the game has now offered a very good value opportunity, at 2.1 to 1. (unexpected news in the market will provide opportunities, where the time is the component that leads to a change in price)
This opportunity is a no brainer, if my assumptions of the Colts as a team hasn't changed, and more importantly their playcalling and ability to go down the field under pressure in the first half, exhibits the much publicised weakness in the Dophins secondary - something which would come back to haunt them later.
So I place a bet on the 2.1 to 1 odds for Colts to win the game. (the key here is that my framework for the trade has been defined premarket, and as long as the assumptions that have defined the premarket values haven't changed, then I should execute the trade)

Colts are once again deprived of the ball, and Miami score the touchdown to take a 7 points lead, where now the odds for the Colts go up to 3.5 to 1 - this is where my bet is being tested. (many times the trade that you execute will go against you, and test your psychology, where you will exhibit regret, or ability to ride out the trade)
I wait patient for the Colts to take possession, and Manning prove my Colts thesis straight away, practically going down the field in short order to put the colts into the lead, which they maintain and go to win the game.

Many times in sports betting and trading, being correct isn't the key, it's being able to find a good value then executing risk/reward opportunities that fits your trading thesis that you have defined before the dynamics of time and price are playing out.