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To explain my last post a bit further I thought I would use the Massa pole position bet I done in the Malaysian GP as an example.
Here is the graph I posted earlier but this time I have shaded some area’s to show what was happening.
Here is the graph I posted earlier but this time I have shaded some area’s to show what was happening.
Click picture to enlarge
Why did I enter the market?
As explained most of my trades are entered because I’ve done some research and I feel the odds are either over or under valued. In this is case I felt the odds being offered when the market first opened where far too high so a back bet was placed. It’s important to look at this as a trade and not a bet – in other words I’m looking to get out at some point and I want the minimum amount of risk possible. The start of the blue line shows when I entered the market and at what price (7.8)
What are the risks before a wheel is turned?
Not much in this case. It would have been very hard for the odds to have drifted at this price and if they did it would have been a slow and steady move outwards giving me plenty of time to re-evaluate and make a choice on whether to exit or not. Any exit would have been for a small loss if the odds did drift.
As you can see from the graph the odds came in slightly before the start of first practice which is a good start.
Practice 1
A good performance in the practice session causes the odds to drop further as Massa is 1.067 seconds quicker than anyone else. I could exit but a lot of resistance in the market is keeping the odds at a high level (I don’t know why people thought he was not capable of getting pole?). A bit of an over reaction during testing and the entrance of some layers after the session causes the odds to end up around 5.5. I know the afternoon session will be similar and other than Massa crashing and causing an injury to himself (car damage is almost irrelevant on Fridays) I felt safe for the rest of the day so no action is taken.
I could have taken a small green at this time but I was confident in my research and felt these odds still represented great value – I don’t want to get out if I would still be happy to back the runner had I already not already taken a position.
Practice 2
Massa’s looking strong finishing the just behind Hamilton in the timing. Still the odds are not coming down as much as I would hope and end the day slightly higher than the day’s lowest point. Due to F1 being a world wide event the odds can change over night as people in other parts of the world drag themselves out of bed to their PC screens. The bet is therefore left to run until the next day, knowing any movement in odds should be in my favor (otherwise I have seriously miss-read the situation!)
Practice 3
You start to run a risk now because car/engine damage could dramatically change things if grid penalties are handed out or the team don’t have enough time to repair damage. As you can see the graph is a lot more erratic during this session as the drivers and teams are trying different set-ups and fuel loads – all of which gives a distorted view of what’s actually going on. If I have no position on a driver I will try some small and quick trades during this session – usually to get ‘free bets’ on runners and improve my overall book.
Massa ends up 3rd but having watched his times I still feel confident. In hindsight the point I have marked with a grey arrow shows what was probably the best time to exit. Qualy has not even started but I could have locked in a nice free bet on Massa to get pole.
I didn’t take any action because there’s a good chance Massa will top one of the qualy phases and lower the odds further….so I hang on in there.
Qualy
Massa didn’t top either of the first two qualy sessions – no panic! I’m still confident he’s got what it takes and the odds seem to be holding steady around the 4.0 mark. As nobody has even attempted a qualy run at this stage I hold on. Unfortunately the weather in Malaysia is unpredictable and the TV pictures suddenly display the message ‘rain in 6 minutes’. Rain would cause this to become a lottery so its my signal to exit this trade. The yellow line shows when and what price (about 3.55). I layed off my liability at this stage to get a free bet rather than green-up as the rain had not actually started – notice how the odds start to drift as people loose confidence in him nailing a lap in possible wet weather. The cars go out to make their first pole attempts and Massa come’s out on top – shown by the sudden drop in odds to 2.
The rain is yet to surface so they come in to change tyres and all go out for another try. As people fail to beat his time the odds come in further until he shows them the way with a final lap which nobody looks like beating. The rain never came and Massa takes pole meaning I could gave just let the bet run – but that would be gambling and not trading. If anyone else had looked like beating him I would have changed the free bet to a greened book but it didn’t need to happen.
Its easy after the event to look at this and say “you could have won a lot more on an outright bet” which is true. Look at the time I exited and what happened to the odds – what if Massa hadn’t set a great lap – that sudden drop would have become a sudden jump upwards – he could have spun off or had mechanical problems – what if the rain everyone expected had started?. At the following race in Bahrain most people had Massa down for pole because of this performance. His graph would have looked similar apart from two things. It started much lower but did continue to drop as he set good times. The other difference is the end of the graph suddenly shoots up and not down as Kubica steals pole from him – an outright bet would have been worthless in this case.
As explained most of my trades are entered because I’ve done some research and I feel the odds are either over or under valued. In this is case I felt the odds being offered when the market first opened where far too high so a back bet was placed. It’s important to look at this as a trade and not a bet – in other words I’m looking to get out at some point and I want the minimum amount of risk possible. The start of the blue line shows when I entered the market and at what price (7.8)
What are the risks before a wheel is turned?
Not much in this case. It would have been very hard for the odds to have drifted at this price and if they did it would have been a slow and steady move outwards giving me plenty of time to re-evaluate and make a choice on whether to exit or not. Any exit would have been for a small loss if the odds did drift.
As you can see from the graph the odds came in slightly before the start of first practice which is a good start.
Practice 1
A good performance in the practice session causes the odds to drop further as Massa is 1.067 seconds quicker than anyone else. I could exit but a lot of resistance in the market is keeping the odds at a high level (I don’t know why people thought he was not capable of getting pole?). A bit of an over reaction during testing and the entrance of some layers after the session causes the odds to end up around 5.5. I know the afternoon session will be similar and other than Massa crashing and causing an injury to himself (car damage is almost irrelevant on Fridays) I felt safe for the rest of the day so no action is taken.
I could have taken a small green at this time but I was confident in my research and felt these odds still represented great value – I don’t want to get out if I would still be happy to back the runner had I already not already taken a position.
Practice 2
Massa’s looking strong finishing the just behind Hamilton in the timing. Still the odds are not coming down as much as I would hope and end the day slightly higher than the day’s lowest point. Due to F1 being a world wide event the odds can change over night as people in other parts of the world drag themselves out of bed to their PC screens. The bet is therefore left to run until the next day, knowing any movement in odds should be in my favor (otherwise I have seriously miss-read the situation!)
Practice 3
You start to run a risk now because car/engine damage could dramatically change things if grid penalties are handed out or the team don’t have enough time to repair damage. As you can see the graph is a lot more erratic during this session as the drivers and teams are trying different set-ups and fuel loads – all of which gives a distorted view of what’s actually going on. If I have no position on a driver I will try some small and quick trades during this session – usually to get ‘free bets’ on runners and improve my overall book.
Massa ends up 3rd but having watched his times I still feel confident. In hindsight the point I have marked with a grey arrow shows what was probably the best time to exit. Qualy has not even started but I could have locked in a nice free bet on Massa to get pole.
I didn’t take any action because there’s a good chance Massa will top one of the qualy phases and lower the odds further….so I hang on in there.
Qualy
Massa didn’t top either of the first two qualy sessions – no panic! I’m still confident he’s got what it takes and the odds seem to be holding steady around the 4.0 mark. As nobody has even attempted a qualy run at this stage I hold on. Unfortunately the weather in Malaysia is unpredictable and the TV pictures suddenly display the message ‘rain in 6 minutes’. Rain would cause this to become a lottery so its my signal to exit this trade. The yellow line shows when and what price (about 3.55). I layed off my liability at this stage to get a free bet rather than green-up as the rain had not actually started – notice how the odds start to drift as people loose confidence in him nailing a lap in possible wet weather. The cars go out to make their first pole attempts and Massa come’s out on top – shown by the sudden drop in odds to 2.
The rain is yet to surface so they come in to change tyres and all go out for another try. As people fail to beat his time the odds come in further until he shows them the way with a final lap which nobody looks like beating. The rain never came and Massa takes pole meaning I could gave just let the bet run – but that would be gambling and not trading. If anyone else had looked like beating him I would have changed the free bet to a greened book but it didn’t need to happen.
Its easy after the event to look at this and say “you could have won a lot more on an outright bet” which is true. Look at the time I exited and what happened to the odds – what if Massa hadn’t set a great lap – that sudden drop would have become a sudden jump upwards – he could have spun off or had mechanical problems – what if the rain everyone expected had started?. At the following race in Bahrain most people had Massa down for pole because of this performance. His graph would have looked similar apart from two things. It started much lower but did continue to drop as he set good times. The other difference is the end of the graph suddenly shoots up and not down as Kubica steals pole from him – an outright bet would have been worthless in this case.
Hi John,
Very interesting reading as ever. Keep up that good working.
All the best, Loocie