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How to bet the Preakness like a trader

Nyquist #13, ridden by Mario Gutierrez, wins the Kentucky Derby on May 7, 2016 in Louisville, Kentucky.
Scott Serio | Eclipse Sportswire | Getty Images
Nyquist #13, ridden by Mario Gutierrez, wins the Kentucky Derby on May 7, 2016 in Louisville, Kentucky.

Kentucky Derby winner Nyquist is a strong favorite to win Saturday's Preakness, but there's a better strategy than wagering on him to win.

To take advantage of the so-called dumb money being bet this weekend, the smarter bet to make is for him to place. That means you'd make money if Nyquist finishes first or second.

The place bet is how a pro trader would bet the Preakness.

This is a rare opportunity because in a Triple Crown race there is so much money coming in from people who aren't pro gamblers. Most of the $50 million bet on the Preakness is from casual bettors, who place bets only a couple times a year. It's these casual traders who you can take advantage of.

Bill, Walter and Tom Hessert are brothers who founded Derby.com, a social-based horse race betting platform. They offer legal wagering on the Preakness and other live U.S. races. Their data on hundreds of thousands of historical races have given them insight on what bets you should — and should not make. One example is the free option on Nyquist.

As a result of Nyquist's extreme success and popularity, the odds are going to get skewed to such a degree that you can feel confident in making a strong trade.

The free option on Nyquist

For extreme favorites at Triple Crown races, like Nyquist, the place bet often pays at least as much as a win bet. Similar patterns happened with big favorites like American Pharoah (2015), California Chrome (2014), and Big Brown (2008).

2015 American Pharoah
Odds: 9-5
Win: $3.80
Place: $3.40
Show: $2.80

2014 California Chrome
Odds: 1-2
Win: $3
Place: $3
Show: $2.40

2008 Big Brown
Odds: 2-5
Win: $2.40
Place: $2.60
Show: $2.40

"If the odds are 1-1 or lower, don't be surprised to see the same payout for the win bet and the place bet," Walter Hessert said. "If the odds go under 1-2, the place bet is likely to pay better."

This is bizarre — a second-place finish causing the same or higher payout than a win. It only works because so much money from irrational rookie bettors skews the odds. Everybody bets on Nyquist to win, but then forgets about him as a possible second-place finisher.

This wouldn't happen in a race dominated by professional bettors, and it wouldn't even happen in a Triple Crown race with a diverse set of favorites. It's a rare opportunity, and it's something to watch for on Saturday.

"Nyquist is the ninth post-time favorite to win the Kentucky Derby in the last 20 years," Walter Hessert added. "For seven of the eight champs before him, that led to a first- or second-place finish in the Preakness Stakes. The only one that fell short was Orb in 2013, a very lukewarm Kentucky Derby favorite at over 5-1 odds, who finished fourth place in the Preakness. He had the longest Kentucky Derby odds of all nine favorite winners."

Hessert's summary of the opportunity this year is clear: "A $2 place bet has paid $2.70 on average for the Preakness' returning favorites." Hessert suggested the place bet has never looked so attractive, due to the peculiar circumstance.

Last year the place pool was worth $3.8 million — certainly enough money to cover the casual investor making a small bet.

Avoid these rookie mistakes

The Hesserts also had a few basic mistakes that the "dumb money" consistently makes:

Gray horses: Don't bet on any gray horses because their odds are too out of whack. They stand out visually because of their color, so people are more likely to bet on them, "but they aren't any faster than the other horses," Bill Hessert said. Their data show that gray horses don't pay off in the long run.

Post position 7: Rookie bettors just like to say "put 10 bucks on seven" — regardless of what horse that is. The lucky number seven isn't lucky for a smart, rational bettor. The Hesserts advise you not to bet on any horse in the seventh post position, because the odds are too out of line for the quality of the horses.

The biggest long shot: The "dumb money" also likes to take on lottery-ticket type risks, by putting money on the biggest long shot. Another way of describing the biggest long shot is "the worst horse in the race." Odds that might be shown as 50-1 for the worst horse could actually reflect the reality of it being 100-1 or 200-1 if the true odds were being shown. Stay away from this horse, you'll lose money.

The biggest favorite: Yes, this is the sad one. The biggest favorite in a race is also a bad trade — that's because everybody wants to make easy money by following the usual media headlines. In the case of Nyquist though, the place bet is a smarter way to go.

NBCSN will begin coverage of the race on Saturday at 2:30 pm ET.

Correction: This story was revised to correct the spelling of American Pharoah.