While learning the markets and starting to trade options and even earning my bachelors in finance, I had a lofty view of HFTs, prop trading firms, and institutional investors. Gamma hedging, in-kind redemptions, advanced options strategies and structured products? Even recruiting the top math PHDs from MIT/harvard/etc for ostensibly advanced mathematical/computational knowledge and expertise? Wow! These guys must have some awesome and cool advanced strategies! That’s probably why Jane Street, Medallion fund, Citadel, et al, seem to keep posting higher and higher profits every quarter/year and why they are so clandestine and highly revered!
…And then the Jane Street/India options trading scandal happened. And we all got a look at the ‘advanced’ trades that net them their largest profit ever. And it’s literally the most sophomoric trades you could imagine. Long puts, short calls, and dump out the illiquid underlying with enormous deployments of capital and big bet bullies. That’s… literally… it. That’s what took you idiots a million math degrees and decades of trading experience? These morons have less sophistication than our highly-regarded ilk on wallstreetbets. Like… this is actually embarrassingly novice-level trades. It literally ONLY works because you are BY DEFINITION manipulating the market and have access to billions and billions of dollars.
I hoped there was something I missed but everyone I reach out to who has highly-advanced knowledge and experience in options markets can’t really rebuke my understanding of this incident because I’m pretty sure this is actually exactly what happened. I reached out to Matt Levine and radio silence (although I’m sure even if my understanding were correct it’s not like he would confirm it anyway; guy is legit BOUGHT by the institutions–doesn’t he get paid a ton to do a yearly speech at Jane Street? Kinda sad). My derivatives professor couldn’t offer any alternative explanations either, although he said he doesn’t really know a ton about equity/index options and instead loves his commodity futes (I swear commodities guys are the weirdest, but that’s a topic for another time…).
So I reach out here: Please, please, please, offer me an explanation I’m missing because I’m a bigger fish than those drunk rich businessmen spewing chips at $1/$2 no limit hold ‘em at Texas Card House. PLEASE let there be something I missed.
Because otherwise… yeah these guys are less clever than anyone even on WSB.
I guess though that makes me way less scared to take the other side of their trades. Complete idiots, lol…
The Jane Street India options scandal disillusioned my view of "sophisticated" market participants.
byu/longspyleaps inoptions
Posted by longspyleaps
5 Comments
Well, consider the fact that they made billions of dollars on those plays. So, it works 🤷♀️
lol. they treat india like a place to mint beermoney. india has one of the most liquid options markets with bulk coming for RETAIL traders who dont know what they are doing.
basically retail traders got rug pulled for not being more careful.
Jane Street made $10.6 billion in 2023 and $20.5 billion in 2024, out of which about $565 million came from manipulation the index in India.
OP: “That’s… literally… it” This is all Jane Street and the entire industry do.
???
Why does taking advantage of a layup opportunity denigrate their complex strategies?
Also Matt Levine did write about this in his newsletter and talked about it on his podcast.
so couple of things:
– One of the greatest achievements Wallstreet accomplished is the marketing.
While they do employ some of the smartest people and some are actually far more intelligent about the trades you are giving credit for, there are also many that are not that bright and have access to too much money and effectively gambling. I have heard stories of built systems that can’t even calculate their book’s deltas correctly lol. There are many PMs that think selling options is free money with 0 risk (lol) and don’t even know what the market makers basic functions are.
It may sound like I’m being hypocritical or contradicting myself but the main takeaway is that not everyone is actually ‘intelligent’ in the finance sphere. Shouldn’t be a shock though because all industries have this. Doctors are suppose to be ‘smart’ but some can be dumb as rocks and shouldn’t be practicing medicine due to incompetence hence why you hear about malpractice stories.
– Sometimes the simplest trades/strategies are the most lucrative.
With that all being said, a lot of people don’t understand about the JS Indian strategy market. Options do play a role but I guarantee there is a reason why they do what they do. It isn’t very obvious, but simple concept once the basics are understood, and a lot of people don’t know it well though I suspect there are a handful here that actually do know and laughing at the articles inaccurately explaining the mechanics.
They are not ‘manipulating.’ They are doing their very legal trades but the execution/mechanism, which they need to do for risk management, caused these volatile action in the Indian market. No one is trying to pump and dump the market. JS, and others, found alpha in the strategy and acting on it which causes some of these movements you witness.