- No BS. Just Bullish.
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- No BS. Just Bullish.
No BS. Just Bullish.
Halloween | Spooky Trades
The Wall Street Skinny
October 31, 2024
This Week on The Floor
We’ll keep today’s newsletter short and sweet to give you time to vote early (if you can) and enjoy Halloween (if you celebrate)!
A trip down memory lane with (disastrous) election trades
A trip down memory lane with Kristen’s (equally disastrous) favorite Halloween memory
Week 5 of teaching you how to read the financial news
Markets Recap / Deal News
Interviewing this week? Here’s some content for your conversation.
On Saturday, we released a special edition episode focused on the US election with our dear friend Mosheh Oinounou, head of Mo News.
And in last week’s newsletter, we discussed the explosion in election betting markets.
But when it comes to betting on elections, there is perhaps no more (in)famous example than Jane Street’s trade on election night in 2016.
The only kind of feet pic you’ll ever see from us.
Jane Street is effectively both a market maker and a prop shop, in a sense.
They facilitate market making activities just like the sales & trading desk in an investment bank does, but can also trade on a proprietary basis, something that hasn’t been legal at Investment Banks in over a decade.
One of Jane Street’s most well-known alumni is Sam Bankman-Fried.
And when SBF was at Jane Street, he was involved in building an algorithmic trading model tracking the behavior of the US equities market in response to overall perception of the likeliest outcome of the Trump/Clinton election in 2016.
The model had discerned a distinct pattern: any increased likelihood of Trump winning the presidency resulted in S&P’s selling off.
The market’s behavior was telling them that Trump was bad for equities.
So on election night, pulling from all the various sources at their disposal, a group of Jane Street’s traders (SBF amongst them) determined that Trump was the victor ahead of the official call.
They put on a massive trade, with billions in exposure, betting on equities going down just as they had observed in prior months.
When Sam Bankman-Fried went to bed, the trade was up something like $300mm in Jane Street’s favor.
And sure enough, Trump was elected president.
But when SBF woke up the following morning, he was in for quite the rude awakening.
The markets had reacted in the exact opposite way than he’d predicted. His position had gone from up $300mm, to down $300mm in the ensuing hours, as the markets ultimately took a different view on the outcome of the election.
There are many lessons to be learned here about trading and hubris that are well beyond the scope of this newsletter.
But the biggest moral of all: make sure to VOTE!!!
And to learn more about SBF’s time at Jane Street, check out our deep dive on Michael Lewis’ excellent book, Going Infinite.
Kristen’s “favorite” Halloween memory
When I was 10 years old, I was an ice skater.
Not amazing, but pretty good.
On October 30th, I was practicing my double salchow.
Another skater crashed into me from behind, and I fell face-first on the ice — right on my teeth.
I remember the seconds after it happened: panicking when I rolled my tongue over my teeth to find them all out of position.
The front of my smile was completely flattened.
I thought I’d be forever deformed, and I was devastated…not only scared about my teeth and the pain, but also because I’d miss trick-or-treating, my favorite night of the year 😱😱😱.
I remember sitting alone in my living room, watching Halloween shows, devastated that I was missing the fun.
That was until the doorbell rang.
The first of my friends, Jen (yes, same Jen) showed up to come bring me Halloween candy.
She took about half of her stash and gave it to me.
More friends showed up and did the same.
By the end of the night I had more candy than I would have if I’d just gone trick-or-treating myself.
As devastated as I was, I was touched that my friends cared about me enough to come and share their precious candy.
And for anyone wondering about my teeth, my braces helped stave off disaster. I only ended up needing one root canal, and every tooth in my smile today is my own 🎃.
Happy Halloween!
This Week in the Markets
We’re helping you learn to read the financial news.
Last week, we asked you to identify three risk factors that should cause the price of your investment to move up or down.
As you can see from the infamous 2016 Jane Street trade, sometimes the markets defy the predictions of the world’s smartest traders.
Regardless of whether your investment went up or down week-over-week, was it because of the risk factors you predicted? Why or why not?
This week, as you head into the election, try to put yourself in the shoes of the Jane Street traders. What is your thesis of how your investment should react to one outcome or another?
Write this down in a coherent thesis. Pretend you’re sending this thesis to a client, a potential employer, or a portfolio manager.
Don’t worry, no one will see this but you.
As you read all the news over the next week as we head through the election, scour the financial news for articles to support your view that you can use in your one-pager.
And next week — you guessed it — we’ll read the news with an eye to figure out why you were right or wrong.