What Effect does 3rd Down have on Price?
Is it better to buy, sell or hold on big 3rd down plays in NFL markets? It’s a concept that will definitely play a role in how you want to trade specific drives hoping to get an edge on the change of possession or conversion. For those players looking to actively trade in and out of position on key possessions the idea of 3rd down trading will be an important one.
The basics of 3rd down give the offensive team 1 play to convert a first down and continue a potential scoring drive which will almost always move pricing. In the 2017 regular season NFL teams converted at around 37% of the time ranging from the Vikings at 45% to the Dolphins at 32%. When comparing these statistics there are 4 important considerations when deciding if you should be a buyer, seller or holder on 3rd down plays.
Time Left in Game: Probably the single biggest driver of pricing. Obviously a game in Q1 will not be as sensitive to scoring compared to Q4. Thus, the expectation of a 3rd down conversion moving the market is minimal early in the game. As the game progresses, i.e. Q3 and Q4 each possession will have a much greater impact on price movement. A big 3rd down conversion or stop inside the 2 minute warning will likely move the price enough to start a small trend and be profitable in you are able to be on the right side of the trade.
Score in Game: Some people might debate that the score is the biggest driver but we would like to make the argument that the market pricing would already be priced in and trading off of future expectations. The score alone should be considered when; the score is within 1 possession or when the score is a blow out with lots of time to play. During blow outs there will be traders looking to make short term trades with a score or shift in momentum and capitalize on the value of buying a team down by 21 at $10 looking to trade out at $15 for a quick 50% ROI. Third down plays will likely be the catalyst for a small rally ahead of a potential scoring drive which could move a team that is trading cheaply.
Location of Ball/Play: Relatively straight forward aspect of when you want to consider a 3rd down trade; the closer the team is to getting into either FG range or a red zone chance the more likely a successful conversion will drive pricing enough to be profitable. The same can be said if you are buying the defensive team and playing the difference between a FG try or a drive continuing for a chance at the end zone. If the ball is on the offensive side of the field the pricing should react accordingly.
The Spread: The final piece to 3rd down trading is being aware of the price spread between buying shares and selling shares. On BallStreet you can expect spreads to range from $2 to $5 depending on the event and current liquidity in the market. In order for your 3rd down trades to be profitable you need to ensure that the play will move the market through the offer side depending on which direction you are playing.
If the time left and score both present themselves it can be profitable to scalp these types of situations when you have a read on the market and game. When your 3rd down trade is correct you will be in early and have opportune to trade into strength of people buying shares after the play converts.