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 |
| 2.78 | 1.50 | 67% |
| 3.30 | 4.00 | 25% |
| 4.13 | 4.00 | 25% |
| 7.58 | 12.50 | 8% |
According to the Odds Engine, we have one price point at which our estimation of true value intersects approximately with favorable odds: $2.78.
Next Steps
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)/8We 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 |
| 2.78 | 67% | 58% | $2 |
Utilizing the 1/8 Kelly Criterion formula, we are advised to bet no more than 3% of available cash on Alexco Resources.
Conclusion
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.
