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What is a Bounce Back?
We’ve all been there… we’ve received a dropping odds alert, we’ve found a price better than Pinnacle’s No Vig Price (NVP) at one of our soft bookmakers, we’ve placed the bet and then almost as soon as the bet is placed the odds bounce back!
Depending on the size of the bounce back this is often a big indicator that the bet you placed doesn’t have positive expected value. That’s especially considering we work under the assumption that Pinnacle’s price becomes more efficient as the start of the match approaches and we are using that vig free price as our efficient price and therefore ‘line to beat’.
Of course, we want to minimise the amount of negative EV bets we place so we need to understand what happened and where we went wrong, if we went wrong at all.
Why Do Pinnacle’s Odds Bounce Around?
Pinnacle’s odds bounce around because Pinnacle is trying to come to the ‘right’ price (fair odds + vig) and it is constantly receiving new information that causes its pricing mechanism to change its opinion on what that price is.
If you see a very volatile market that is bouncing around a lot then you are looking at a market with a lot of uncertainty.
If Pinnacle doesn’t have confidence in its current price then it will keep the amount of money that can be bet by a bettor on the market low. The amount that Pinnacle is allowing is called the limit.
In low-limit markets, the price is moved easily because the price is held with very little confidence by Pinnacle so you see the odds bounce around a lot leading to situations like the one I outlined at the start of this article.
As you know, we use Pinnacle’s NVP as the price to beat because Pinnacle is the best in the world for a lot of markets at pricing, but that doesn’t mean at any point in time in any given market that Pinnacle’s NVP is totally efficient so we have to account for that. That is what I am going to explain how to do throughout the rest of this article.
How can I ensure I don’t end up having long-term negative EV?
Bet with a margin of safety
I’d argue that alerts for Pinnacle’s most and least efficient markets can both yield positive EV bets at your soft bookmakers. The difference is that the margin of safety we demand should be higher for the latter.
Let’s say I receive an alert for an American football money-line market and POD is telling me Pinnacle’s NVP is at -110 and I’m being offered odds of +100, then I feel confident placing a bet at those odds even though the EV is only 4.8%. The reason I am confident this is a + ev bet is because Pinnacle is famous for being excellent at pricing American football money-line markets as shown by its high limits and low vig on these markets which are both proxies for pricing confidence.
If I take a bet of this nature 1000 times, yes some of them will of course fall on the wrong side of expected value, but in the long term Pinnacle is only going to be off in its pricing of American football money-line markets by a margin far slimmer than 4.8% so my yield should converge closely enough with my overall expected value.
Now when it comes to a handball alert I wouldn’t take a bet with an EV of 4.8% using Pinnacle’s NVP that POD provides. This is because Pinnacle’s average limit for a handball market hovers around $100 and its average vig is around 6.5%. These two indicators tell me that it's not confident in its handball prices which means I’m not confident in its handball prices!
However, this lack of pricing efficiency doesn’t mean that it isn’t quicker than softs to adjust to new handball market information like a star player getting injured in the warm-up, so the dropping odds alerts are still valuable… You just have to demand a larger margin of safety when you bet at the pre-adjusted odds.
Now how large that margin of safety should be depends on how inefficient you deem Pinnacle to be at pricing handball markets and to be frank I haven’t got the data nor the time to go about figuring out that to six decimal places or any decimal places for that matter so this is going to be more of a gut call for most of us. My advice is to err on the side of caution, something like an 8% premium to Pinnacle’s NVP sounds about right to me. But depending on the confidence indicators you might well push that up to above 10%.
What if I don’t want to bet on low-limit markets?
Now, you might say ‘screw the margin of safety I don’t feel comfortable betting using lower efficiency Pinnacle prices in any circumstance’.
The truth is you will be narrowing your opportunity field drastically, firstly because you will receive fewer alerts and secondly because bookies are faster to react to drops in high-limit markets because their own limits are probably high so they need to be more price sensitive to avoid heavy losses. In short, your turnover will suffer so your overall ROI will lag behind its potential.
Let’s talk about the inverse of what I just said. Bookmakers are slower to react to market changes for low-limit markets so these markets are a rich hunting ground!
In my personal opinion if you completely exclude lower-limit markets from your betting strategy then you are unnecessarily handicapping yourself.
I repeat once more, just adjust your margin of safety in proportion to the estimated market efficiency, which is indicated by Pinnacle’s limit and vig, to make sure you are a long-term + ev bettor using the dropping odds strategy.
Full cash out is a get-out-of-jail-free card
I have outlined above how we can protect ourselves from Pinnacle’s NVP being inefficient through the margin of safety principle. Now let’s look at cash outs as another option.
Let me explain how I think about and deal with cash outs…
If the market has turned against me after bet placement and now my EV is in question or outright annihilated and I’m still being offered a full cash out, which is sometimes the case, then I take the money and run 100% of the time. This is sensible because your cash out EV is 0 while if you let the bet settle your EV will be in the negative.
Partial cash out can be wise…
If the cash out is partial then I have to look at the loss i’ll take as a % of stake and compare that to the current EV using the latest NVP and if the loss from cash out is less than the expected value loss then I will take the partial cash out. The inverse is true for when the loss from partial cash out is greater than that of the expected value loss.
Summary
- Pinnacle’s odds bounce around because its pricing mechanism is frequently being fed new information, less efficient markets are more volatile as the price is easily moved
- Limit and vig are both proxies for Pinnacle’s confidence in the pricing of its line and when evaluated in conjunction with each other they are great indicators of price efficiency
- Pinnacle is better at pricing some markets than others but the dropping odds strategy can work for all market efficiencies. In fact those on the lower end are counter-intuitively often the best hunting grounds because softs adjust to new market information slower for these markets
- The margin of safety is a key concept that demands a higher premium to Pinnacle’s NVP for less efficient markets. It allows for Pinnacle’s mis-pricings and means you can place positive EV bets without having to only focus on the high-limit markets
- If you decide to exclude low-limit markets from your betting strategy then your turnover will be limited as you will receive fewer alerts and catch drops at a slower rate. So instead of doing that I recommend you consistently implement the margin of safety principle with an estimated and always conservative proportionality to the efficiency of the market
- If your EV changes to negative after bet placement and you are still being offered a full cash out then take it. If you are being offered a partial cash out then calculate the loss from cash out as a % of the stake and then compare it to the EV loss if you were to let the bet settle
