The derivatives markets have flourished in recent years and are now firm favorites of both recreational and professional sport bettors. After you read this article, we recommend you to read our NFL derivatives article for a more in-depth to betting NFL derivatives.
The term ‘derivative’ comes from the financial markets, where it refers to a financial instrument that derives its value mainly from the price of another financial instrument.
So shares in Ebay, for example, wouldn’t be derivatives, as their value is defined essentially by how well the company itself is doing. On the other hand, if you were to buy Ebay ‘options’ (financial instruments that give you the ‘option’ in the future of buying Ebay shares at a specific price), those would count as derivatives since the price of each options contract will move up and down in line with the value of the shares in Ebay.
How We Use To Place Bets
Derivatives in sports betting markets work in a similar way. But rather than being based partly on the value of another financial instrument, these instead derive their value from another sports market.
First half lines for football, or five inning lines for baseball, are common examples of sports derivatives, as the odds for these bets are derived from the full game prices. The 1st quarter odds in NFL or NBA are also derivatives, as the prices of these are derived from the first half odds. In fact, when you look at it, the vast majority of bets offered by bookmakers are, in fact, derivatives.
This goes even deeper when we get to proposition bets, such as “Who Will Score First?”, or individual team and player props. When we bet on a running back’s number of yards, or a wide receiver’s receptions, or on team totals, we’re actually betting on derivatives of derivatives.
Why Target Derivatives?
Simply put, the sportsbooks are at their most vulnerable when it comes to derivatives. There’s a reason that they accept $20k or more on NFL sides and totals, but have vastly decreased betting limits for derivative markets.
When you bet on half-time lines, you’ll often be limited to a quarter of the money you could have placed on full games. The maximum bet on proposition markets may be no more than $500, with limits sometimes running as low as $100-$200.
These types of bets are geared towards recreational bettors, but the inefficient pricing (and potential for high-value scores) has made them a target for professional type bettors. Keeping track of full game sides, and totals are of the utmost importance due to the popularity and massive wagering that takes place on these markets.
Derivatives aren’t exactly an afterthought for oddsmakers, but their focus is on larger markets. If you’ve ever browsed propositions, alternative lines, and half-time and quarter lines, you will probably have found dozens of bets for each game, especially on popular contests.
Sportsbooks don’t have the time to focus on all of the bets they offer, and the derivative markets aren’t a high priority for them. These derivative markets aren’t easy to price up, though, so inefficiencies will be frequent, and plenty of savvy bettors will be waiting to take advantage.
Unlike full game sides and totals, derivatives will usually be subject to large variations in odds from shop to shop.
When line shopping for an NFL spread, for instance, there’s rarely a difference of more than a half-point between each market. When a line moves rapidly due to sharp action, all other sportsbooks follow, usually rather quickly. While there are still books that are slow to move their lines, or that have a different opinion on a number, catching a line after a key move is tough.
This isn’t always the case with derivatives. Half-time lines and quarter lines should follow quickly, but this often doesn’t happen. Players and team props will likely be slow to move, and, in the case of some shops, may not move at all.
In general, derivatives can offer some pretty stark differences in price compared to full game markets. This is especially true with player and team props, where bettors who are prepared to go line shopping will have an excellent opportunity to take advantage of some highly inefficient markets.
For example, an NFL prop on the total rushing yards for running back Adrian Peterson. A player may find one sportsbook offering a total of 90 yards at over -110/-110 while another book prices this up at 90 yards over +100/under -120. A third book may have a totally different line with different juice altogether, so you might see this prop listed as 92.5 yards over +110/under -130.
The differences between sites can be glaring. There may also be plenty of arbitrage opportunities, allowing you to take advantage of price differences across the books to lock in a profit, and offering the possibility of making money regardless of the outcome.
Manipulating Betting Limits
Derivatives also allow bettors to circumvent betting limits where they have hit their maximum on full game sides and/or totals.
Say you think the Packers -7.5 will win big against the Broncos, but you have already bet the $5,000 maximum your book allows. If you have a particularly strong opinion, you may want to analyze the derivatives with a view to placing further bets.
If you think the Packers will win by more than a touchdown, perhaps you should wager on “over” Green Bay’s total yards, or on the Packers to score first. This allows you to get extra action above and beyond your handicap bet. If you’re keen on a certain matchup in the game, you could take a look at player and team props. A strong opinion can almost always lead you to some appetizing derivative markets, and adding bets in this way is relatively simple.
Now let’s take a popular prop bet from Major League Baseball and see if we can glean insight into how the bookmakers price it, as well as how the prop varies between two books.
The prop bet is “Which team will score first?” This is a derivative of a derivative, with its price based on the first five innings prop. We will use the game between the Philadelphia Phillies and the Los Angeles Dodgers and two popular bookmakers in this example, 5Dimes and The Greek.
5Dimes has the relevant lines for this prop as follows:
First Five Inning Line
Team to score first
Using a no vig calculator we find that these lines imply 54.86% for the Dodgers and 45.14% for the Phillies in the first 5 innings. Since a tie is a push, and the full game line is almost identical to the first 5 innings line we will ignore pushes for this example. For the team to score first prop we come up with the Dodgers at 58.82% and the Phillies at 41.18% with no ties possible since obviously a team eventually does have to score. Using these numbers, there is almost a difference of 4% in these two lines (3.96% to be exact.)
This difference is explained by the fact that the away team bats first in baseball and thus has first crack at scoring first. If the Dodgers score in the top of the first inning, the prop is already over before the first Phillies player steps to the plate. 5Dimes is suggesting this advantage of batting first is worth about 4% for this prop.
For the same game, The Greek lists the lines as:
First Five Inning Line
Team to score first
Again using the no vig calculator we have implied odds of 53.25% for the Dodgers in the first five innings and 46.75% for Philadelphia. For the team to score first the no vig odds are Dodgers 58.35% and Phillies 41.65%. In the case of The Greek, the difference is higher than 5dimes, with a 5.1% weight added for the Dodgers batting first. (58.35%-53.25%).
Notice the better pricing at 5dimes. They use a lower vig, especially on the first team to score prop.
Above All Else, Line Shopping
All of the above advice is basically useless if players don’t properly line shop. It’s the most important part of maximizing your EV. Even if you analyze the prop correctly, taking +110 when you could have easily grabbed +115 at a rival book will cost you money over the long term. You want to maximize your wins and minimize your losses, and every cent matters. Sorting through the lines at multiple books and finding value is an absolute must.
Also make sure the props have the same rules when line shopping. Some obscure props may have different rules depending on the book, and this may explain the price difference. In MLB betting, for example, make sure the props list pitchers as “must start” across all books you are considering. Otherwise, the prices will be slightly different and what you think is good line shopping is just the books properly adjusting based on different house rules.
Become a Student
Maximizing your EV on each bet will give you best chance to win on your wagers, but learning to break down the individual matchups or gameplan aspects of each sport will also benefit players greatly.
Sportsbooks consider many factors when developing lines for derivatives, and have a system for pricing player and team props. However, as we mentioned above, there are sometimes so many markets that the book doesn’t have the time to examine each and every bet in detail.
Knowledge of sports betting is a must, but bettors can help themselves out with a deep knowledge of the sports they are wagering. Using advanced stats and following the league closely can give you an excellent starting point for the bets you wish to target.
Maybe you notice that a certain big name starter often struggles in the early innings in day games before settling down. You also look at prop lines regularly and usually find that when this pitcher starts, his team is a huge favorite. Combining these with line shopping can provide +EV opportunities.
Understanding derivatives is essential to winning at sports betting. This advice goes tenfold for newer bettors, trying to build a bankroll. Attacking these markets will be one of the best ways to jumpstart a profitable sports betting career.
Author: Joseph Falchetti