In the last article of Seller's Thinking 01, many readers said that they got a little inspiration from Long Xin, which is enough. Now I will talk about a very confusing phenomenon that many people asked me privately, that is, why he always loses money when he does poker insurance! As a result, many people are not very willing to open insurance in many games now.

If you don't know much about Texas Hold'em insurance, you can search on Baidu

First of all, let's popularize a concept, which is the three most basic concepts of options.

VEGA: It means volatility. In poker, selling insurance is essentially helping the rich to bear the volatility, but harvesting EV. Theoretically, insurance can cause a loss of EV of about 15% per time (similar to the EV of over/under in the real NBA. It can be seen that it is a bit difficult for the dealer to control the over/under.)

DELTA is not used in insurance because it represents direction.

In poker insurance, we can consider THETA to be 0, which means it does not exist.

But it should be noted here that since the frequency of insurance is not high, in fact, the fact that theta is 0 here actually weakens the seller's profit in disguise. In real-life poker games, this part of theta is actually reflected by rake + card dealing fee or venue fee, etc. That is, the buyer has actually paid a part, but considering that the two opponents in the insurance game may not pay, we will not introduce theta for the time being.

So the core here is actually the confrontation between VEGA and EV

(I have posted the following paragraph on Weibo once, which focuses on the relationship between volatility and EV)

Many people may not understand why high volatility is inevitably accompanied by huge negative EV. For example, if you go to Macau, the odds of BAOJIALE's pair are 8 to 1, but the probability of occurrence is actually 9.5%. Each time you bet on a tie, you will basically lose 15 points of EV. But for the dealer, the volatility he bears is actually that he can only take profits if you bet X times in a row and nothing comes out. The probability of not coming out is 90.5% once, but we can roughly calculate that the probability of not coming out for 8 consecutive times is 0.9 to the 8th power, which is about 0.43. That is to say, if the player is rushing to make a profit and bets on a tie for 8 consecutive times, the dealer actually has a 50% chance of not making a penny here, and there is even a more than 50% chance that the player bets on a tie early and leaves early. This is the charm of volatility. The buyer earns volatility and loses EV, and the seller bears the volatility VEGA and earns EV.

Another example is BAIJIALE, which is relatively fair, so the EV loss each time is actually very low.

But if you go to the next door Wan Caribbean, Caribbean is because the seller may be hit by a bigger hand type to get a higher odds, such as four of a kind, straight, etc., the seller has to bear a larger VEGA, and Caribbean's EV is only 0.95. Compared with the low-volatility 21-point BAIJIALE and LUNPAN, they are much more unscrupulous.

So here we go back to the first question above: why do insurance in offline poker games often lose money?

1 The theta seller of offline poker did not get it: but if insurance and rake were the same company, I am sure that in a short time, the overall profit curve would actually rise.

Because the insurance that exploded actually increased the currency in this closed system in disguise, which can greatly promote everyone to lead to more radical and larger pots.

2 The insurance seller cannot choose pot and may even be forced to gradually increase his position, causing vega to continue to rise.

Everyone knows that the pot gets bigger as time goes by, so the seller is actually facing a gambler who is doubling his pot. In the first half of the night, the pot may be 100BB, and in the second half, it may directly reach 1000BB. If the pot explodes once, all the seller's previous efforts will be wasted.

In reality, when we do options, we cannot be forced to increase our selling positions. We can even use a part of it to hedge as the buyer, but this is obviously not possible with insurance.

3. The seller’s cycle is too short

Generally, the number of hands played offline in one hour is less than one-third of that played online. I have seen a large number of online poker games, and the insurance earns as much as RAKE, so it can be seen how important frequency is. As long as it can be split, the risk of the seller will be reduced exponentially. The amount of money played offline is generally greater than that played online, and the financial pressure on insurance is also greater. Many people give up before they even make a profit. Does it look like the player who went long on 40,000 pancakes and got liquidated at 30,000? Your direction is right, and what you do is right, but your funds are not enough to allow you to use this position to hold on until the moment when the sun comes, so you can only be swallowed by the darkness...

Finally, let’s talk about how to optimize the insurance plan so that the insurance can operate stably (it may not be feasible, but it’s okay for my friends)

After all, volatility is everyone’s enemy, and no one wants to go bankrupt and not be able to play poker.

1. All members will bear part of the insurance funds (or all of them, if all of them, the insurance company will only charge a few points of the total insurance turnover as a service fee) (similar to our social insurance). That is, all members of the insurance company will hold a part of the shares. This method can be to use part of the water as the insurance fund pool, and all members will share this part of the income as dividends, etc., to reduce the volatility of the insurance. Improve everyone's EV (you can also consider increasing the pressure on tight players by paying X yuan per hour)

2 Insurance You can find the organizer (or other third party) and buy 2 insurances. For example, if the pot is larger than 200BB, the remaining part will be borne by the winner of the game (he has the game THETA we mentioned earlier as protection)

3. The maximum amount of insurance purchased is limited, which reduces the madness of people under the super-large pot and indirectly reduces VEGA

For example, an insurance company in our country limits the accident insurance for a single person to less than 1 million yuan. Guess, is it to prevent crazy things from happening?

4 Insurance sets a critical value based on the BR of each player entering the game. That is, if only a few people are brought in, it is impossible to provide a large protection in a large POT. Because strictly speaking, this is his large profit at this table, which is other people's money. This also prevents profitable players from continuing to participate in the big pot, which is a disguised protection for the big fish.