Hedge

A hedge is a counter-bet placed against your existing position to lock in profit or reduce variance. The classic use case: you bet a long-shot futures ticket at +5000 (e.g., a 16-seed to win March Madness), they make the title game, and you hedge by betting the favorite on the other side to guarantee profit no matter who wins.

Hedging math: - Original bet: $100 on Underdog at +5000 → potential profit $5000 - Final game: Underdog +200 vs Favorite -250 (decimal 2.85) - Hedge: bet $X on Favorite at -250 such that ($X × 2/5) = profit on Underdog ticket - $X - Solving: optimal hedge locks in equal profit on both outcomes.

Hedging always reduces expected value (you're paying away some of your edge) but reduces variance. Whether it's correct depends on your bankroll size and risk tolerance relative to the bet.

Closely related to arbitrage: an arb is essentially a hedge placed simultaneously with the original bet. A hedge after the original bet has appreciated is sometimes called a "free roll" because you're locking in profit on a paid-for position.