We traded out of Alexco Resources last summer when it became fully valued at U.S. $2.43. Shares now trade at a 50% discount to our estimate of True Value. We’d like to re-enter, but are the odds in our favor? Let’s find out.
|Price||Odds of Winning||Probability of Winning|
According to the Odds Engine, we have one price point at which our estimation of true value intersects approximately with favorable odds: $2.78.
We have determined that there is a trade with favorable odds on the table, but how much should we wager?
We rely on a 1/8 Kelly Criterion betting system in order to determine exactly how much to wager relative to available cash.
Here is the formula:
=(((PAYOUT*PROBABILITY OF WINNING)-PROBABILITY OF LOSING)/PAYOUT)/8
We know the probability of winning, but in order to execute the formula, we need the Odds Engine to tell us the probability of losing, as well.
Here are the results:
|Price||Probability of Winning||Probability of Losing||Payout|
Utilizing the 1/8 Kelly Criterion formula, we are advised to bet no more than 3% of available cash on Alexco Resources.
We have discovered a value bet with good odds. If $AXU drops to $0.51 in the ongoing crash, representing a 79% discount, we’d wager. But not until then.