Sports trading can be approached in much the same way a value investor approaches the stock market. A stock’s price reflects the market’s perceived value of a company; a price reflects the market’s perceived value of an outcome. The value investor’s job is to get under the hood of the fundamentals and decide whether the thing is priced correctly. Underpriced, buy. Overpriced, short.
Oversimplified, obviously, but it’s the frame one can work in when constructing a trade. Start at the price and work backwards. How did the market arrive here? What is it assuming? Do you agree with those assumptions? Is there information it hasn’t priced, or past play it’s weighting too heavily relative to future play?
That last question is most of the work, because the inputs are rarely clean. A football season gives you a small sample arriving fast, and the task is separating what carries signal — the stuff that’s stable and reproducible — from what’s noise dressed up as a result. Priors, or the assumptions we make coming in, have to move, but only as far as the evidence actually supports.
The trade is downstream of all of that. If the process is right, positive returns follow over a large enough sample. Conversely, consistent positive ROI at scale over time is the validation that the process was any good in the first place.
With that said, 3 weeks into the season we’re at a unique spot in the pricing lifecycle. We have some data to match to our pre-season convictions, but enough uncertainty as to its small sample that there is large disparity for how to price various teams and understand from the first few weeks what carries signal and what is more noisy.
Let’s use one team that has been quite the surprise at 3-0 through 3 weeks, the Las Vegas Raiders as a test case for this process.