Volatility, bet sizing, and relative success

Fixed odds betting writers and tipsters tend to talk in terms of ‘points’.

They might recommend: Bale to score first, 1pt at 4/1.

One point refers to the size of your standard bet. Depending on how flush or reckless you are this might be 10p, £1, £10, £100 or, if you’re a Premier League footballer or Russian oil baron, £10,000. The idea is pretty straightforward: using points allows the tipster to recommend a bet size relative your standard stake.

For example, a standard tip (like the one given above) might suggest a 1 pt bet, a day’s NAP (i.e. a strong recommendation) might suggest a 2 pt investment, whilst a more speculative outsider (perhaps with some each way value) may well be tipped up to the tune of 0.5pts.

The nature of fixed odds betting means you only stand to lose your stake: the maximum loss of a one point bet is one point, if your usual punt is a tenner, then a tenner is the most you can lose. Your winnings, naturally, depend on the odds offered.

Of course, spread betting is quite different: the size of your win or loss varies according to just how right, or how wrong, you are in predicting a certain outcome.

An example:

In a cricket match, a fixed-odds firm will offer you a ‘runs line’. Say England are batting first in a Test Match, the bookie might set the line at 320.5 (the half is there to ensure the tie is out of play) and the punter can either back England to get fewer or more runs than the prediction (normally called the ‘unders’ or ‘overs’) – the odds will typically be 10/11 or 4/5 for either option.

Not exactly a road: Sabina Park, 1998

Not exactly a road: Sabina Park, 1998

Your mate on the ground staff reckons it’s a good pitch and suggests you back the overs for 2 pts. Your standard bet is £10 and as you trust your friend with the heavy roller, you stick £20 (2 x 10) on England to make 321 or more.

Unfortunately the surface is dryer that a Jack Dee joke about a Jacob’s cream cracker, the pitch does all sorts from ball one and England collapse to 115 all out. You’re £20 out of pocket and need to have a stern conversation with your pal.

Imagine the same scenario with a spreads firm. They make England’s 1st innings runs 315-330. You’re backing England to bat well so you ‘buy’ at 330. A 2pt (£20) stake here equates to £20 per run. England’s collapse doesn’t just cost you a score, it costs you £4,300 ((330-115)x20=4300)). Ouch. You’re seriously out of pocket and fantasizing about that heavy roller and your friend’s head.

We clearly need a different way of describing stake size for spread markets. However, one more element to consider first:

Whilst it is perfectly feasible to be 200 runs out (either higher or lower) on the prediction of a 1st innings score in a Test Match, the number of goals in a football match very rarely goes beyond the range of 0-8 (obviously having ‘minus goals’ is impossible and 9,10,11+ goals in a game is very, very rare – but does happen, just look at the closing day thriller between the Baggies and Man United at The Hawthorns).

We refer to this difference in the range of feasible outcomes as ‘volatility’. A trade on innings runs is thus more volatile than a trade on total goals in a game of football.

A market’s volatility will typically be reflected in the size of the spread offered. An innings runs quote typically starts with a spread size of 15 (315-330) whereas a total goals quote will typically have a spread of 0.2 (2.65 to 2.85, for example).

We can think about the size of spreads wagers (and the relative success of their outcomes) in terms of spread times stake (SXS), that is the size of the spread multiplied by the size of the bet. The bigger your typical bet is, the higher your SXS will be.

A SXS of 100 would equate to a £6.66 bet on innings runs (15×6.66=c.100) but a £500 bet on total goals (500×0.2=100) – both hefty wagers. Working to a SXS of 15 would allow a £1 bet on innings runs and £75 on total goals. A smaller punter might look at a SXS of 5 – that’s a 33p bet on the cricket and £25 on the total goals.

Using SXS allows us to consider a bet size appropriate to our means across different sports and markets. The spread tipster can express a particularly strong recommendation (equivalent to a fixed-odds 2 or 5 pointer) by suggesting a SXSx2 or SXSx5) or a more tentative punt as SXSx0.5.

Thinking in terms of SXS also gives a means of comparing the relative success of bets. It is clearly not satisfactory to equate a 2 point win (i.e. very slim) on a cricket runs market to a 2 point win (pretty significant) on football goals.

The loss talked about in the cricket example earlier could be represented as follows:

-215 (points lost) / 15 (size of spread) = -14.3

If, in the football example, I had bought goals at 2.85 and the match was a seven-goal thriller, that would be:

(7-2.85) = 4.15 (points profit)

4.15/0.2 = 20.75

In my previous post I discussed underestimating England’s series ton ups by 23 points (original spread = 52-57, make up = 34):

-23/5 = -4.6

You can calculate what you might have won or lost by multiplying this figure by your SXS. So if you had a SXS of 100 you would have lost £460, A SXS of £15, loss of £69, and a SXS of 5 (unsurprisingly) a loss of £23.

I will use this method to keep a running account of the success (or more likely failure) of my spreads tips. So, for this week I’m -4.6.

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