Monday, 18 November 2013

Rising Suns Beat The Heat

We have a winner. The quiz question to name the only team to have led in the Fourth Quarter of all their NBA games this season was answered correctly by a couple of people. Charlie was the first to offer an answer:

The Miami Heat must have led in the fourth quarter of every game this season, with three losses by a total of six points. Probably too slow to get the subscription, but then gamblers don't always get out of bed early... Regardless, I enjoy reading the blog and hope you continue for many more years.
A fellow premium (but not super premium) charge payer,
Unfortunately for Charlie, Miami Heat never led in the fourth quarter of their November 1st game in Brooklyn. They came within one point in losing 100-101. 

The correct answer is the Phoenix Suns, and the first person to send in the correct answer was Chris whose email address has now been added to the XX Draws distribution list hopefully a good thing for Chris!

The discussion on whether or not to let positions run continues with Emp having this to say:
This issue is interesting to me because cricket (a sport built for in-play if ever there was one) presents this issue all the time.
I think a good general heuristic is to not add more at short prices to positions that are profitable (could be greened up) unless the position offers massive value. Also, consider that value assessments might be wrong and destructively so at short-prices. An example for those who follow cricket: many were slaughtered by India's effortless 359 run chase against Australia, though the half-time prices as short as they were looked to offer real value on Australia

I agree with Cassini about greening up. Theoretically maximizing EV should matter over bank preservation, but the latter allows you to build up more smoothly, not to mention that people aren't robots and very few can perform perfectly despite large set-backs and swings.
That said, sacrificing value to green up can be destructive and makes no long term sense, so I'd just let it run.
An example of how these things work out when the value is to lay more than enough to level-up is shown below in today's NFL game when I layed the Detroit Lions for more than required:

The decision was vindicated when the Steelers 'roared' back with 'pride' to beat the Lions, although I had given up some of my green by the end to pretty much level up the outcomes. 
Ellis returned to say:
If the 'fair (correct / true) price available' is 1.6 then you are saying that outcome has a 62.5% chance of winning. You can then adjust your position to reflect this % chance.
Not sure what's being second-guessed if you are confident that 1.6 is the correct price?
Nothing is being second-guessed if you do this. My original discussion point was whether, despite believing a price to be fair, traders have a tendency to try to be clever and take a less than optimal approach.

Fizzer asked:
Cassini, In this example, I'm interested to know how you would approach it if the value price was still with the Thunder. If, for example, the Thunder price was 1.7 would you bet more on the Thunder because there was value in doing so or, because preserving your bank is important, would you stick with the +2300/-600 position given that, in your fair odds situation there was a 37.5% of losing. (I'm assuming the 3rd option of hedging or leveling up at bad odds is not a consideration because you are giving up value).
If the value was on the Thunder at 1.7, I would look to load up slightly green-heavy on them, except that as Emp cautions in his comment, adding at odds-on might be the optimal play, but unless the value is 'massive' it might be better to act as if the price were correct. 1.2 might be a value price to back at, but it's a brave man who would add on at that price. 1.7 is better, but still odds-on. 

As for levelling-up at bad odds, I am sure I have done this in the past, and probably will do again. As a non-robot, if I have been in a bad position all game, the tendency is that, should the opportunity arise to get out with little damage or even a small profit, it's very tempting to do this at the first opportunity, even if the correct play is to hold the position. It's frustrating to lay a team early at 1.3 for example, and then watch them take a big lead and trade for ages in the 1.0x range. Then the game tightens up and the price comes out to 1.3 and the feeling of relief can easily trump the knowledge that 1.3 is really not a value price to back at. We're all different, and only the professionals can be expected to make the optimal play every time, but it's a lot easier to make the right decision if your stakes are 'sensible'. 

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