Option Trading Blog

I am not a gambler mind you, but I am an arbitrager. That is, wherever there is the opportunity of making a risk free investment, you’ll find me. Apparently, such opportunities do arise in gambling, and with the advent of the internet, those are easier to find.

First, I have to explain what I mean by an arbitrage opportunity in gambling and how those arise in the gambling world. Here is a quick example: Suppose we have a basketball match in which Chicago Bulls play the Utah Jazz. Let us suppose that there is a gambling website that offers a stake of 1:2 for the Chicago Bulls to win. Meaning that you’d earn 100% on your investmnet if you place your bet on the Chicago Bulls. Let us also suppose that there is another website that offers a 1:3 stake for the Utah Jazz to win. This means that if you place a bet for the Utah Jazz to win, you’d earn 3 times your money.

Although theoretical, here is why you can make risk free money. Suppose you invest 1.5$ on the Chicago bulls in the first website and 1$ on the Utah Jazz in the second. You have in total spent 2.5$, but you have eliminated all uncertainty. If the Chicago Bulls win, you’d get 3$ back, and if the Utah Jazz wins, you’d also get 3$ back. So you’d make a profit of 50 cents for each such move. Not too bad. Of course you can earn as much as you want depending on how much you invest, as long as you notice that you bet 1.5 times more on your first bet.

More generally, this works whenever the bets are mutually exclusive. This means that if you bet on 3 results, make sure that in all states of the world(losing, winning etc..), one will happen and you had a bet on it. Also make sure that you have removed all uncertainty and you know how much you’d make in each bet. And of course, most importantly, make sure that your initial invested sum is less than the prize of winning at some state of the world.

Here is another example: Suppose we have a baskteball match and one website offers a bet of 3:4 that the score of both teams together would be less than 160. Let’s also assume that another website puts the bet that the score would be more than 160 at 2:3. Is there an arbitrage opportunity? let’s check. The first thing we do in such situations is try to find which sum of investment in both bets, gives us the same return. We notice that if we invest in the first 9 we’d get 12 back. In the second we notice it is 8 to get 12 back. It’s easy to see no arbitrage can occur since we have to invest an intial investment of 9+8=17 which is less than 12, our guranteed winning prize no matter what happens in the game.

You are probably asking yourself how can I find such opportunities? That’s when problems arise. This is no magic pill. There are websites on the web that search for free for you to try to find such arbitrage opportunities. They make their money by bringing customers to the gambling websites. The problem is that such opportunities fade away quickly as they are realized by other people. Moreover, sometimes the money made is too small and won’t cover the cost of making the bet and commision. ALWAYS CHECK WHAT HIDDEN COMMISIONS A GAMBLING WEBSITE HAS. Mostly always, there is a commision to also withdraw the money you made. So it’s always a good idea to read all the hidden commisions and generally not withdraw your money after each bet.

For further information, I recommend googling the words “arbitrage” and “gambling”