Applying TheWolfLineTM Analytics Products and Platform for Fantasy Sports Markets in Comparison to Applying Stock Market Index/Sector/ETF Analysis to Individual Components of the Associated Stock Market Index/Sector/ETF
Although fantasy sports is an extreme micro niche of the sports speculation marketplace, there is tremendous value in terms of fantasy sports being used for legal and legislative resource as well as theoretical correlation to traditional financial markets. In order to "beat the market" (also known as achieving alpha), the trader/fund manager cannot buy/own/be long the same assets/players/ETFs/components and/or sell/not own/be short the same assets/players/ETFs/components as "the rest of the market". To beat the market/achieve alpha/succeed in fantasy sports markets, the trader must buy/own the irrationally underowned assets/players that subsequently overperform and sell/not own irrationally overowned assets/players that subsequently underperform. Financial fund managers/traders are beholden to this law of market alpha/performance just as fantasy sports traders are beholden to it. The recent popularity of fantasy sports made this principle abundantly clear to millions of participants in that particular market. This is an unexpected but positive educational aspect of fantasy sports for the participants to understand the concept of how to achieve alpha/success in a free marketplace.
TheWolfLineTM Fantasy Sports Trader Would Use the Same Trading Philosophy for Buying/Selling Particular Players That are Components of a Particular Team as a Quant Stock Trader Would Use for Buying/Selling Particular Stocks That are Components of a Particular Stock Sector/ETF
- Buy/Sell/Trade the stocks/components of the sector/ETF that they belong to the same way as you would buy/sell/trade the associated sector/ETF
- Own/Do Not Own the players/components of the team that they belong to the same way as you would buy/sell/trade the associated team
- The ONLY way to prosper in the fantasy sports model of market trading (as in all markets) is to buy/own the irrationally underowned/oversold players/components of a team/sector ETF which then subsequently overperform relative to ownership and to sell/not own the irrationally overowned/overbought players/components of a team/sector ETF which then subsequently underperform relative to ownership
- "Beta" and "weight" of the players/components in the team/sector ETF should always be considered
- "Starting" a player/component is buying/owning/getting long that player/component. "Sitting" a player/component is selling/not owning/getting short that player/component
The trading method to be applied in the context of Fantasy Sports Markets is the same method that a trader would use when buying/getting long/owning a basket of individual stocks/components in a portfolio that are either in the same index/sector/ETF (players on one team) or different indices/sectors/ETFs (players on different teams). If the index/sector/ETF (team) is presumed to be undervalued/oversold/underowned, then the stocks/components (players) that are in that particular index/sector/ETF should also be presumed to be undervalued/oversold/underowned. This is especially true for stocks/components/players that have a "high beta" relative to the index/sector/ETF/team and/or are a "heavily weighted" component of the index/sector/ETF/team of which they are associated. These market conditions are recognized through the appropriate use of TheWolfLineTM Quant Sports Trading platform and the associated technical trading products (charts, calculations, and alerts) for price/relative strength (pointspread/handicap), probability/delta % (moneyline) and volatility (totals).
Of course since we know that the concept of the duality of two sided sports markets is absolute, we also know that there is an opposite, and equal, side to this ETF/stock component, Team/player component strategy of buying/owning which is selling/not owning.
It is obvious, and expected, that in this example, JPM moves in tandem with its associated sector/ETF in terms of price action. The beta of JPM relative to BKX is basically 1.0 (exactly positively correlated). Other "players/components/stocks" on the "team" BKX are BAC, BBT, BK, C, CBSH and 18 others that would be expected to have similar price action, rallies and sell-offs.
Beta: The expected performance of a stock/player relative to the expected performance of the sector/ETF/team to which it is associated. A stock/player with a beta of 1.0 will perform very close to the sector/ETF/team to which it is associated (E.g. the price activity of JP Morgan stock/JPM and the Banking Index/BKX). A beta greater than 1 would presume the stock/player will perform better if the trade is that the associated sector/ETF/team will overperform market expectations (underowned/undervalued/distressed). However, it also presumes that the stock/player will perform worse if the trade is that the associated sector/ETF/team will underperform market expectations (overowned/overvalued/bubble). Whether we are talking about Fantasy Sports Markets Traditional Sports Markets, Individual Stocks, or Sectors/ETFs, the singular goal of the trader is to own/buy/ be long the irrationally underowned/oversold and to not own/sell/be short the irrationally overowned/overbought. This concept is universal throughout all markets and underscores why the appropriate theoretical understanding and application of TheWolfLineTM Quant Sports Trading platform is extremely valuable for the trader to accurately analyze, price and manage his risk and market probability in both Traditional Sports Markets AND Fantasy Sports Markets.
So What Does This Mean When Using TheWolfLineTM Quant Trading Analytics for Fantasy Sports in Simple Terms?
JPM stock is like LeBron James and The Cleveland Cavaliers are like the BKX Banking Sector ETF. Another example would be Aaron Rodgers is JPM stock and The Green Bay Packers are the BKX ETF. Important players for teams would be presumed to have a "high beta" relative to their team (like JPM relative to BKX…the Sector/ETF to which it belongs). Just as sell-offs in JPM mimic the sell-offs in BKX when that sector ETF became irrationally "overbought/overowned" and rallies in JPM mimic the rallies in BKX when the sector ETF became irrationally "oversold/underowned" (these patterns of correlation between the price action of the stock/component and the price action of the sector/index/ETF that the stock belongs to is certainly not a coincidence that same concept applies directly to the relationships in Daily Fantasy Sports (trading individual stocks/players that are components of a particular sector ETF/team) and Traditional Sports Gaming (trading the sector ETF/team that is in question itself). Very simply, Daily Fantasy Sports Trading is an exercise of buying/owning a basket of stocks (players), either from the same sector (team) or different sectors (teams) and Traditional Sports Trading is buying/owning the sectors (teams) and in doing so, buying (owning) all of the stocks (players) that compose the sector (team) in question. Stocks/players/teams/sectors that are not bought/owned/long position are by definition sold/not-owned/short position. Once this concept is understood in the context of stock basket trading versus stock sector/ETF trading the theoretical and practical migration from using TheWolfLineTM Quant Sports Trading Platform for Traditional Sports Trading to Daily Fantasy Sports Trading is very simple.
Using TheWolfLineTM Volatility Tools to Determine Which Players/Components to Buy/Start/Own/Get Long and Which Players/Components to Sell/Sit/Get Short
TheWolfLineTM volatility tools would be used in a similar fashion as the price/relative strength and probability/delta % tools. Through the interpretation of the volatility products, the trader can infer the likelihood of a market mispricing of current implied volatility. If the trader expects implied volatility of a particular match/relationship to be oversold/underpriced, it would behoove the trader to enter into ownership of assets/components/players in that particular match/relationship under the presumption of market irrational underownership of current volatility (obviously this would also apply to declining to own/buy assets/components/players in that particular match/relationship under the presumption of market irrational overownership of current volatility…also known as selling/getting short volatility). Furthermore, the actual implied volatility of the market relationship/match should also be given strong consideration.
Using an example from the 2016 NFL season, we see an interesting example of a match that could be interpreted to have irrationally underowned players/components because of TheWolfLineTM market price and volatility conditions. Of course the "beta" of the players/components associated with the 2 teams/sectors must also be considered. With the Dallas Cowboys/Pittsburgh Steelers match showing relatively high implied NFL volatility/closing total of 51 points and the match showing significant WolfLineTM alert patterns of price/volatility conditions, a WolfLineTM quant fantasy sports trader COULD INTERPRET this as an opportunity to get long/own players/components that are irrationally underowned by the market.
As we can see in this example, the user/trader has chosen "correction trading" and "more liquid markets" in the "trading behavior" and "market grouping" alert options for price and probability and "correction trading" and "less liquid markets" for volatility (volatility chart shown for purpose of agnostic demonstration/trader free choice). TheWolfLine TM alerts show significant patterns favoring the Pittsburgh Steelers in price and probability markets and the over in volatility markets (meaning that the Steelers and volatility/"the over" could be oversold/underowned) The user/trader could be motivated by these alert patterns to buy/own components/offensive players/stocks that are in the sector/ETF/team associated with these alerts. In this particular game, the starting QB, top WR and starting RB for the Steelers (high beta components) had the following statistics:
Ben Roethlisberger (QB): 37 completions/46 attempts. 408 passing yards. 3 TDs. 0 INTs
Le’ Veon Bell (RB): 17 carries for 57 yards and 1 TD. 9 receptions for 77 yards and 1 TD. 134 Total yards and 2 TDs
Antonio Brown (WR): 14 receptions for 154 yards and 1 TD
So…WHAT IS THE POINT THAT WE ARE MAKING HERE?
Very simply, the "correction style trader" in this scenario saw a Pittsburgh Steeler Team/Sector/ETF that was most likely undervalued/oversold/underowned He also saw volatility conditions in the relationship that were most likely undervalued/oversold/underowned. In the application of TheWolfLineTM for the fantasy sports markets, an additional step must be taken. The trader is now convinced that the components/players/stocks on The Pittsburgh Steelers are most likely undervalued/oversold/underowned just as he was convinced that the associated team/sector/ETF was most likely undervalued/oversold/underowned. Then the obvious next step would also be applied to the most likely undervalued/oversold/underowned implied volatility of the relationship (the posted total) and the beta valuations of the components/players/stocks that are part of the team/sector/ETF.
This brings us to the 100% correlation of trading analysis methods of using TheWolfLineTM quant sports trading analytics for fantasy sports markets and the method of trading the stocks/components of sectors and ETFs in the equites markets. If the trader felt that the BKX banking sector was oversold and was anticipating an upside correction, and also felt that volatility was oversold and was anticipating an upside correction, it could be indicated, for example, to position himself long directionally and long volatility in either the ETF OR some select components of the ETF. Referring back to the price action charts of BKX and JPM above, let’s say that the trader is interested in JPM, BAC and C. Considering that he is intent on long direction/long volatility/irrational underownership of the components, he could simply purchase the At the Money Calls for JPM, BAC and C. This is EXACTLY the same method as buying/starting/owning Roethlisberger, Bell and Brown based on the presumptive oversold Pittsburgh Steelers/Implied Volatility and associated pricing/ownership conditions of the components.
Stocks/Options Trading = WolfLineTM Fantasy Sports Trading
- ETF/Sector/Index = Team
- Component/Stock = Player on Team
- Stock/Option on Stock = Component of ETF/Sector
- Implied Volatility = Posted Total/Over-Under
- Stock Price = Salary/Ownership of Player
- BKX = Pittsburgh Steelers
- JPM, BAC, C = Roethlisberger, Bell and Brown
- Beta of the stock relative to sector/ETF/index = Beta of the player relative to the team
- Buying/owning the stock = starting/owning the player
- Selling/shorting the stock = sitting/not owning the player
As always, the quantitative analysis methods and choices of TheWolfLineTM quant sports trader are entirely his own and can be customized in all contexts and sports to his own artistic application.
K. Gregory Wolfe
Icarus Hegel Analytics, LLC