NBA Trading - Thoughts

BB’s NBA trading blog I mentioned earlier got me thinking. It’s no secret that successful trading means buy low/sell high, or in Betfair terms, back high/lay low. Of course, this is easier said than done. If you read books on trading, usually written with the financial markets in mind, you will read about entry and exit points. It’s not difficult to devise these for non-financial markets. For example with basketball, you could set a rule that if a game is tied or the pre-game underdog is within ‘x’ number of points at the end of the first quarter, and the price on the pre-game favourite has moved less than ‘y’ percent, then this is a signal to enter the market.

One big difference between highly liquid financial markets and relatively illiquid basketball markets is the inability to set a stop-loss. BB mentioned in one post http://tradethenba.blogspot.com/2008/04/denver-la-game-5.html that he layed the Lakers at 1.17 and had a stop loss at 1.10 should they continue to play well. Personally with a lay at the 1.17 mark, I wouldn’t be too concerned about a stop-loss. The downside is already very limited, but when entering a market at a higher price, the inability to set a stop loss can be expensive. Just look at tight games in the last couple of minutes. The price doesn’t smoothly drop in .01 increments, but plummets from say 20 to 5 to 2.3 to 1.2 with little activity between those points.

A recent example was last night’s game between the Cavaliers and the Wizards. Note that all times and prices are approximate because in the heat of battle I do not have time to record everything. Essentially the situation was that with a minute left, the Cavaliers were up by 5 points and were trading at 1.05 or so. For me this is a great lay opportunity. The last minute in an NBA game can last for an eternity, and if I am ever told by a doctor that I have a minute to live, I am going to request that it is the last minute of a close NBA game.

I digress. Laying at 1.05 meant that the downside was minimal, but the upside was huge. One score by the Wizards, and the price moved nicely out to 1.25 or so. Then the Wizards got a stop, and scored again – now the price was out to 1.7 or so. When the Wizards took the lead with about 3.6 seconds to go, the price on the Cavaliers had shot out to 6.0 or so, and as it turned out, the Wizards ended up winning by that 1 point so for a risk of 50, one could have let the bet run and made 1,000 or backed it back to go Green-All-Over and nicely in profit after the lead was trimmed to 3 or to 1. I should mention that I didn’t manage to lay any of the 1.05 myself, but I have used this strategy in the past to good effect.

Rather than wait until late in the game, my strategy revolves around laying teams after they are on a 6 to 10 point run. Basketball is very much a game of momentum and with the market being driven by fear and greed, it lends itself perfectly to trading. I can’t really reveal my precise method because there’s a substantial subjective element to it. I try to get a feel for the game, and weigh factors like whether it’s the home or the road team that is under-performing, what stage the game is at, the foul situation, which team needs the win more etc.

Basically I look for value. I look to lay a team that in my opinion has been backed too low or vice-versa. It is very seldom that a chart of the prices will show a steady decline down to 1.01. There are always runs within a game and greed means that the price is driven too low, and then when the run is over and the other team starts a come-back, the fear element kicks in and the market moves back.

Comments welcome, please.