Re: King Yao Article: 5th Reason to Hedge
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Another common reason to hedge is if you have made a wager on a betting exchange that takes commission on net market winnings (such as Betfair or Matchbook). It increases your EV to make a zero or slightly negative hedge bet in the same market.
For example, suppose you short the Grizzlies +2.5 tonight at 1.9 for $100 (risking $90) at Betfair because you believe that they only have a 50% chance (fair value is 2.0) of covering that spread. Let's assume your commission rate is 4%.
If the Grizzlies don't cover, you will win $96 ($100-$4 commission).
If the Grizzlies cover, you will lose $90.
Your EV without hedging is .5*96 - .5*90= $3
But suppose you can buy back the Grizzlies at 1.99 for $95.48 (to win $94.52). You will win $4.52*.96 = $4.34 regardless of the result.
By making a slightly negative EV wager as a hedge, you have increased your EV from $3 to $4.34 while removing your variance.
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Your math is wrong on this last part. You cannot add +EV to any bet combination by adding extra -EV bets.
The $4.52*.96 = $4.34 should be 94.52 * .96 - 90 = .7392 for that side. The other side is 96 - 95.48 = .52.
You're still +EV, but lost a fair amount of EV. (.7392 + .52) / 2 = $.6296 versus $3. You've lost 79% of your original value by hedging.
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