Insurance theory Part 1


Insurance theory Part 1

A couple of scenarios played out in the trades for Sunday 15 March which reminded me of a point I think it is valuable for new traders to bear in mind.

I have posted a number of times on the need for a trade to represent "Value" in terms of the risk v reward. Traders often over insure, in my opinion, and this can both dilute the profit potential and restrict the flexibility to react within the trade as it plays out, dependent on circumstances.

In the evenings games, Ads suggested a straight forward back of Chelsea at around 1.65. In his opinion, that represented overs in terms of price and as a result was a bet worth taking on, without cover.

Similarly, in the Man Utd v Spurs game, I put up a trade which was nothing more than under 1.5 and over 3.5 - with no cover inbetween. 

The results of both games would have resulted in a loss had the initial wager been left to the game's conclusion, yet we both concluded our trades with profit. How ?

Well obviously in Ads' case, Chelsea went one up, the odds tumbled and he hedged. No different to laying the draw, really, in that you wait for the market to move your way, and take first profit when it does.

That still makes it a trade. Back, hedge. Profit. Simple and effective. Had he taken insurance on the 1.65 it would probably not have been a viable strategy. However, had the first goal gone against him, I am sure there were a number of options open to him to trade out of the red and into the green......lay the dog, back overs, back more on the fave at higher odds, of these options would have been stifled by an initial support bet had it goin against him, so in that context it was an eminently sensible move.

Similarly, in my trade, I could have covered a 2 or 3 goal outcome. However, my plan was not to stay in the trade for long enough for that to be an issue. At reasonably similar odds on the under and over markets, timing would dictate when to close out. As it happened, two early goals brought the 3.5 market in short and created a profit to take which would not have been there with cover on, say 1-2 and 2-1. Had the game stayed at 0-0 for a long time, the green would have been generated by the under market. Any problems and I would have had to look at plan B to provide cover - and without pre-existing bets in play, I can do that with greater flexibility.

The moral of the story is don't forget to look for value, and wherever possible to weed out the "dead" wagers. If you can let the game unfold and only get involved in cover when you can see how it is developing, it gives you more confidence, less risk and more profit. GL 

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