here is the formula:
f = (p * (b+1)-1)/b
- f is the kelly number
- p is the probability of success
- b is the return/risk ratio (sometimes called the odds.)
now suppose you are jeff ma (the real-life protagonist of the movie 21, the big-player for the infamous mit blackjack team, and the author of the house advantage in my brane fud section) and you sit down at a blackjack table for which your confederate has signalled that the count favors players 51:49. how much do you bet? the kelly number is .02 (=.51*2-1). if you have 50K in your bankroll then you bet $1000 a hand.
next i apply kelly to vertical-option spreads ...