If you place wagers on US sports, then chances are high that you’ve heard of point spreads. Here’s how they work; if a game has Patriots -9.0 and Vikings +9.0, the Patriots are 9.0 point favorites and the Vikings are 9.0 point underdogs. Unless otherwise stated, no matter which team you bet on, you’ll be required to risk $1.10 for each $1.00 you want to win. For Patriots bettors to prevail, they need their team to win by 10 or more points. A 9-point Patriot victory would be a push (a tie). For Vikings bettors to take home the victory, they need to either win the game or lose by less than 9 points.
- Spread Betting Examples Definition
- Examples Of Spread Betting
- Spread Betting Examples Meaning
- Spread Betting Explained
- Spread Betting Examples Free
- Spread Betting Examples Vs
Point spreads are used since most recreational bettors prefer to wager even money propositions. In the above example, if there was no point spread, only moneyline betting would exist. So, if odds makers are giving the New England Patriots a 73% chance of winning a game, then in order to take bets and still have a small profit margin, the bookmaker would have no choice but to require Patriot bettors to stake $3.00 or more for each $1.00 they want to win.
NBA Spread Betting Example Houston Rockets -6.5 (-110) Los Angeles Lakers +6.5 (-110) In this game the (-) sign beside the spread amount indicates that the Rockets are the favourite. Spread betting is best explained using an example. Let’s say you want to trade indices and have spotted a trading opportunity in the Wall St index. Trading on the Wall Street index The Wall St index is currently trading at 20609.0 /20610.6.
With a point spread, the odds are balanced, so you usually have to risk just $1.10 to win $1.00. This makes the point spreads appealing to recreational bettors, who often think it’s easy to make money from them. We have to be honest with you; it’s NOT easy, but it IS possible. The strategy we cover in this article should help!
Recommended ReadingTo highlight the access provided by spread betting, referring to the above Tesco example again, betting £100 per penny movement would be the monetary equivalent of buying 10,000 shares as each penny movement in the share price can win or lose you £100.
We’ve provided a brief explanation of point spreads in our introduction here, but if you’d like to know more about this type of wager then please read our beginner’s guide to betting point spreads.
Spread Betting Examples Definition
Simple Tips for Point Spread Betting
Strategy for betting point spreads is obviously different for each sport and league, but these four tips are general enough to apply to them all.
- Take Advantage of Bonus Offers
- Use Multiple Betting Sites
- Be Careful of Road Favorites
- Understand Key Numbers
Let’s go over each of these tips in a little more detail.
Take Advantage of Bonus Offers
One way to make money from sports betting is to open an account at an online betting site and take advantage of their sign up bonus. This gives you extra money to wager with, and since point spreads are so straightforward, it can be relatively easy to meet the associated wagering requirements and still come out ahead. Repeating this process at multiple betting sites will maximize your potential returns! We just ask that you please stick with reputable sites, like any of the ones that we recommend.
Use Multiple Betting Sites
We already mentioned how using multiple betting sites allows you to take advantage of multiple bonus offers. That’s not the only benefit either. Since point spreads vary between sites, one of the best ways to beat these wagers is to compare the different spreads in order to find which one is the most favorable. This doesn’t take nearly as long as you might think, and it will make a huge difference to your bottom line over time.
Let’s take a hypothetical game between the Buffalo Bills and the New England Patriots as an example. One site might have the spread as follows.
Point Spread
+7
-7
Another site might offer a slightly different spread.
Point Spread
+7.5
-7.5
If you’re betting in favor of the Patriots, then you should be betting with Bookmaker A. If the Patriots win by more than seven points, then you’ll win with either bookmaker. However, if they win by exactly seven points, you’ll lose with Bookmaker B. With Bookmaker A, you’ll push and get your stake returned.
On the other hand, if you’re betting on the Bills, then Bookmaker B will be your best option. A Bills loss of exactly seven points would be a push at Bookmaker A, but it would be a win for you at Bookmaker B.
It’s only a half-point difference, and that might not seem like a lot. The bookmakers tend to be very accurate with their spreads though, and an extra half-point in your favor can easily add up to extra profits over time.
Be Careful of Road Favorites
Many novice bettors fail to understand the impact of home advantage when wagering on sport events. When looking at the board for potential wagers, these bettors tend to get excited and bet on lots of superior teams favored on the road against weaker opponents. The betting market is so much more advanced than this, and for the most part point spreads are always going to be 50/50 propositions.
Please NoteWe’re not saying that you should never bet on road favorites. Just make sure that you have good reasons to do so. Keep in mind; they don’t just need to win, they need to win by a greater margin than the spread suggests they will.
Understand Key Numbers
While understanding key numbers is beneficial for betting point spreads on any sport, key numbers are known for having the most significance in football. In NFL football, most games are decided by three or seven points. Therefore, when shopping the odds, the difference between -7.0 and -6.5 is far greater than the difference between -5.5 and -5.0.
With some betting sites odds, certain games are priced differently than risking $1.10 to win $1.00 (which is called -110 odds). For example, you might see the Giants priced at -105 and +7 in a game against the Jets. Now, you only have to risk $1.05 to win $1.00. This is obviously better odds, but it’s very likely that they will lose by exactly seven to give you a push. Taking -110 and +7.5 with an alternative bookmaker is actually the better bet.
Getting your head around these kind of intricacies, as well as knowing the relevant key numbers, is vital if you want to bet on the point spreads successfully.
Now that we’ve got the basic tips covered, we want to provide you with some point spread betting tips specific to two of the most popular US sports: football and basketball.
Point Spread Betting in Football
One of the best ways to beat football point spread betting is to use teasers. A teaser is a form of a parlay bet using modified point spreads. Each point spread you select is moved 6 points in your favor. For example, let’s say you’re interested in betting on the following.
-7
-3.5
+7
A teaser would give you a single wager with the following spreads.
+1
+3.5
+13
Each selection is obviously easier to get right with the spread moved in your favor, but you do have to get all three correct in order for your wager to win.
Examples Of Spread Betting
Recommended ReadingIf you want to learn how to beat this form of wagering, you’ll definitely want to read our article on betting football teasers.
Another way to beat football point spreads is to shop for off market prices. For example, let’s say you’re shopping online betting sites and see every site is offering Vikings +7.0. Then, you stumble upon one site that’s offering +7.5. There’s a good chance that this is a +EV wager, simply because it is out of sync with every other site. Please note that this strategy isn’t quite the same as simply shopping for the best lines. Here, you’re specifically looking for wagers that are +EV because they’re against the market.
It’s also important to consider whether or not there’s any correlation between the point spread and the betting total. If they are, a parlay wager is a good way to get maximum value. For example, a college football point spread +24.5 parlayed with under 48 points in the same game might be a great parlay bet. If the +24.5 team covers the point spread, then there’s an increased chance that the game also goes under the posted total of 48.
Finally, you might want to think about learning the correct strategies for buying half-points in football. While many people are against this method, we’re here to tell you that there are some circumstances where buying points can be profitable.
Point Spread Betting in Basketball
Buying half points is a strategy that can work for basketball too. Most online betting sites offer bettors the ability to purchase half-points at 10 cents each. Let’s say the Lakers are -6.5 at odds of -110 for example. Here of some of the options you can expect to see.
-120
-130
-140
A great strategy for betting basketball point spreads is to shop dozens of betting sites for the best line, and then purchase as many half points as possible (provided they are priced 10 cents each).
When using this strategy, it’s helpful to know the most common margins of victory in NBA basketball and how often they occur.
This information shows us that nearly half the games finish with one of the eight point margins listed, and this isn’t the result of variance. Some margins of victory occur more frequently than others because of end game strategy. The winning team is often found running the clock, while the losing team if often found intentionally fouling.
The key here is to target the point spread five and seven, because these are virtually tied as the most common margins of victory. It’s important to recognize that most betting sites are only willing to sell 2 or 3 half points for 10 cents each, after which point they start charging more. Some sites sell up to four half points at this price though.
To show how this can be exploited, take a point spread of -8.5 at odds of -110. This is a 50/50 proposition. Let’s assume you’ve purchased enough points to move the spread to -6.5 at odds of -150. Now, you’d win instead of lose 6.24% of the time they win by 8, and 6.59% of the time they win by 7. Add these together with the 50% from the original proposition, and we get 62.83%.
Go to our odds converter, and you’ll see that the implied probability of -150 is 60%. This means you need to win 60% of the time to break even. However, our handicapping shows the actual probability of winning is 62.38%.
If we risked $150 to win $100 on this -150 line, 62.38% of the time we would win $100. And 37.62% of the time we would lose $150. This gives us an expected profit of $5.95 for every $150 risked.
WarningIf you only make large +EV bets such as the basketball example above, betting sites will limit the amount you’re allowed to wager. It’s not uncommon for online bookmakers to spot a skilled bettor and say, “Okay you can keep wagering here, but the maximum you’re allowed to bet per game is $500.00.”
If you keep betting and winning, they might decrease your limits even further. That’s why we recommend trying to hide the fact that you’re so sharp. By placing some random wagers and occasionally spending some time at their casino, you’ll have a much better chance of staying under the radar.
This is also another good reason for using multiple sites. Since there are so many different reputable betting sites to choose from, it would take you a long time to get limited at every single one of them.
If you keep betting and winning, they might decrease your limits even further. That’s why we recommend trying to hide the fact that you’re so sharp. By placing some random wagers and occasionally spending some time at their casino, you’ll have a much better chance of staying under the radar.
This is also another good reason for using multiple sites. Since there are so many different reputable betting sites to choose from, it would take you a long time to get limited at every single one of them.
Options Combinations Explained
Options spreads involve the purchase or sale of two or more options covering the same underlying stock or security (ref).
These options can be puts or calls (or sometimes stock too) and be of different options expiries and strike prices.
Each combination produces a different risk and profitability profile, often best visualised using a profit and loss diagram.
For example a trader may sell one AAPL Jan 540 call and buy one AAPL Jan 560 call, a type of call spread as defined below.
In all suchstrategies, a trader uses the chosen combinations of puts and calls to make a profit should an forecast outcome occur.
This is usually that the underlying stock moves a particular way – up in the case of the call spread above – but in more complex trades can be an expected movement in volatility, or to take advantage of the passage of time (we will see how later).
There are three main types of basic options strategies:
1. Vertical Call and Put Spreads
So called because options with the same expiry date are quoted on an options chain quote board vertically.
Hence, vertical spreads involve put and call combination where the expiry date is the same, but the strike price is different.
Examples include bull/bear call/put spreads as discussed below, and backspreads discussed separately.
Bull Call Strategy
A Bull Call Spread is a simple option combination used to trade an expected increase in a stock’s price, at minimal risk.
It involves buying an option and selling a call option with a higher strike price; an example of a debit spread where there is a net outlay of funds to put on the trade.
So let’s say that IBM is at $162 at the end of October.
It might be possible to buy a Nov 160 call for $3.50 and sell a Nov 165 call for $1.00, a net cost of $2.50 per contract:
- Buy IBM Nov 160 Call 3.50
Sell IBM Nov 165 Call 1.00
Net Cost: $2.50
Should IBM rise and be above $165 at the end of November the spread would be worth $5, thus doubling the invested amount.
Of course if it is lower, the spread is worth less, with the worst case being if IBM falls below $160, whereby the spread is worthless and all money is lost.
The trade is therefore a risk adjusted ‘bet’ that IBM will rise moderately over the next month.
We’ve covered the bull call spread in more detail here.
Bear Call Strategy
A Bear Call Spread is a similar trade used to trade an expected fall in a stock’s price, at minimal risk. It involves selling a call option and buying another with a higher strike price.
Note that this is a credit spread: ie that we receive money for a trade and, if we are correct and the stock does fall, weget to keep this if both options expire worthless.
So, again, with IBM at $162 we might sell the $160 Nov call and purchase the $165 Nov call (ie the opposite of before).
It might be possible to buy a Nov 160 call for $3.50 and sell a Nov 165 call for $1.00, a net credit of $2.50 per contract. ie:
- Buy IBM Nov 165 Call 1.00
Sell IBM Nov 160 Call 3.50
Net Credit: $2.50
If IBM falls below $160, as hoped, both options expire and we get to keep the $2.50.
However, should IBM rise and be above $160 at the end of November, the spread would have to be bought back at whatever value IBM is above $160. The breakeven point for the trade is $162.50.
The trade expectation is therefore that IBM will fall moderately over the next month.
Bull Put Strategy
The put version of the bear call spread: ie a credit is received for ‘betting’ that stock will move in a particular direction (up, as compared to the bear call spread where the ‘bet’ was for the stock to fall). For example:
- Buy IBM Nov 155 Put 0.75
Sell IBM Nov 160 Put 2.00
Net Credit: $1.25
The full credit is kept if IBM is above $160 at the end of November.
Of course should IBM not be below $160, the spread would expire with some value (equal to the stock price less $160). Hence if this value is more than $1.25 – ie the stock price is above $161.25 – the strategy has lost money.
This $161.15 is the break even point of this trade.
Bear Put Strategy
This is the put version of the bull call spread: ie an amount is paid up front which rises in value should the stock will move in the right particular direction (‘down’, compared to ‘up’ for the bear call spread). For example:
Buy IBM Nov 160 Put 2.00
Sell IBM Nov 155 Put 0.75
Net Cost: $1.25
Sell IBM Nov 155 Put 0.75
Net Cost: $1.25
Should IBM fall below $155 by the end of November, the spread is worth $5 (a significant increase from the original $1.25) investment.
However if the stock is above $158.75, the final value of the spread would be less than the $1.25 paid, and the trade would have made a loss.
We covered the bear put spread in more detail here.
2. Horizontal Call and Put Strategies
So called because of options with different expiries being displayed horizontally on an options chain quote board.
They, therefore, involve buying and selling options with different expiry dates, but the same strike price (and, of course, underlying). A calendar spread, is a good example or horizontal call or put spread (see more here).
3. Diagonal Spreads
These, as the name suggest, are a combination of the two and are complex trades involved options of differening strike prices and expiry dates. An example is the LEAP covered call spread detailed later.
Covered Call
One popular strategy that doesn’t really fall into the above categories is the covered call which involves the purchase of stock and sell of a call option. More details on the covered call are available by clicking here.
Advanced Options Combinations: Complex Put and Call Trades
Options have a lot of advantages; but in order to enjoy those advantages, the right strategy is essential. If traders understand how to use all the trading strategies, they can be successful.
We already been through some basic options combinations; now it’s time to go through some more complex strategies.
In particular we’ll look at some strategies such as the iron condor and butterfly spread (including when to put on and the related options greeks).
Strangle Strategy
This strategy is a neutral one where an out-of-money put and out-of-money call are bought together simultaneously for the same expiration date and asset. It is also called “Long Strangle”.
When Would You Put One On?
When the trader believes that in the near short term, the underlying asset would display volatility, the straddle is apt.
When Does It Make Money?
In this Option strategy, unlimited money is made when the underlying asset makes a volatile move. It could be downwards or upwards, that doesn’t matter.
Profit = Underlying Asset Price (>) Long Call’s Strike Price + Net Premium
Profit = Underlying Asset Price (>) Long Put’s Strike Price – Net Premium
Profit = Underlying Asset Price (>) Long Put’s Strike Price – Net Premium
When Does It Lose Money?
The spread loses money when the price of the asset on expiration is between the Options’ strike prices.
Loss = Underlying Asset Price = Between Long Call’s Strike Price and Long Put’s Strike Price
Option Greeks
The Delta is neutral, the gamma is always positive, Theta is worst when asset doesn’t move, and Vega is always positive.
Illustration
Assume that Apple Stock is currently trading around $98. A strangle could be a good strategy if the trader is unsure about the direction in which the stock will go.
So, the trader will buy a 97 put and a 99 call. Let us assume they have the same expiration date and value = $1.65. If the stock rallies past $102.3 (3.3+99), the put would have no value and the call would be in-the-money. If it declines, the put would be ITM and the call would have no value.
Straddle Strategy
This strategy is also called “Long Straddle”. When a put and call are bought for the same asset, with the same expiration date and same strike price, it is called a straddle.
When Would You Put One On?
When the trader believes that in the near short term, the underlying asset will display significant volatility, a straddle strategy is used.
When Does It Make Money?
Money is made by the strategy no matter which direction the underlying asset moves towards. The move has to be pretty strong, though.
Profit = Underlying Asset Price (greater than) Long Call’s Strike Price + Net Premium
Profit = Underlying Asset Price (greater than) Long Put’s Strike Price – Net Premium
Profit = Underlying Asset Price (greater than) Long Put’s Strike Price – Net Premium
When Does It Lose Money?
If the price of the underlying asset during expiration is same as the strike price of the bought call and put, the spread loses money.
Loss = Underlying Asset Price = Long Call/Long Put’s Strike Price
Option Greeks
The Delta is neutral, the Gamma is always positive, Theta rises during expiration, and Vega is always positive.
Illustration
Take a new example and assume that Apple stock is currently around $175. Straddle would be a good strategy if the trader thinks that a huge move would be made on either side. A call and put with the same expiration date as the stock would be bought by the trader. Assume that the 175 Call and the 175 Put cost $10 each. If the stock rallies past $195, the call would be ITM by at least $20 and profits will pour in. If the stock falls below $175, the cost of the straddle would be covered. There is a 50/50 chance of being right about the direction because the cost of the straddle is the maximum loss a trader can incur.
Butterfly
In a butterfly spread strategy, there are three strike prices. Two calls are bought – one ITM and one OTM. Two ATM calls are sold.
When Would You Put One On?
When the trader believes that the rise or fall of the underlying stock would not be a lot by expiration, butterfly spread is the best.
When Does It Make Money?
When the price of the underlying stock does not change at all during expiration, this strategy achieves its maximum profit.
Spread Betting Examples Meaning
Profit = Underlying Asset Price = Short Calls’ Strike Price
When Does It Lose Money?
When the price of the underlying stock is less than or equal to the strike price ITM long call OR when its price is greater than or equal to the strike price of OTM long call, this spread loses money.
Loss = Underlying Asset Price (lesser than or =) ITM Call Strike Price
Loss = Underlying Asset Price (greater than or =) OTM Call Strike Price
Loss = Underlying Asset Price (greater than or =) OTM Call Strike Price
Option Greeks
Delta is always positive, Gamma is lowest at ATM and highest at ITM and OTM, Theta is best when it remains in the profit area, and Vega stays positive as long as the volatility is not too much.
Illustration
Assume that Apple stock is trading at $90. Assume that an 80 call is purchased at $1100, two 90 calls are written at $400 (x2), and a 100 call is purchased at $100. The maximum loss would be the net debit = $400. If the price of Apple at expiration remains the same, the 40 calls and the 50 call would have no value and the profit would be $600. If, however, the stock trades below $80, all the options would be useless. If it trades above $100, the loss from the ITM and OTM calls would be set off by the profit from the ATM calls.
Iron Condor
In this strategy, one OTM put with lower strike is sold after buying one OTM put with strike even lower, and one OTM call with higher strike is sold after buying one OTM call with a strike even higher.
When Would You Put One On?
When the trader believes that low volatility is to be expected, the Iron Condor is chosen.
When Does It Make Money?
When the price of the underlying asset is between the strike prices of the sold call and put, this strategy makes money.
Profit = Underlying Asset Price = Between Short Put Strike Price and Short Call Strike Price
When Does It Lose Money?
Spread Betting Explained
The spread loses money when the price of the stock falls below purchased put’s strike price or rises above purchased call’s strike price. Loss can sometimes be greater than profit.
Loss = Underlying Asset Price (greater than or =) Long Call Strike Price
Loss = Underlying Asset Price ( lesser than or =) Long Put Strike Price
Loss = Underlying Asset Price ( lesser than or =) Long Put Strike Price
Option Greeks
The Delta is neutral, the Theta should stay positive, Gamma shouldn’t be too large, and negative Vega should be minimized.
Illustration
Spread Betting Examples Free
Apple Stock is trading at $45, Iron Condor would be – buying 35 Put at $50, writing 40 Put at $100, writing 50 Call at $100, and buying 55 Call at $50. The net credit ($100) is the maximum profit. If the expiration value is the same, all long and short options would be useless and maximum profit would be realized. If it falls to $35 or rises to $55, only the 40 Long Put would be useful and the maximums loss of $400 would be realized.
Spread Betting Examples Vs
The following is dealt with on a separate page: