Before the dramatic collapse of FTX, and even before founding Alameda Research, Sam Bankman-Fried, now facing fraud charges, began his finance career at Jane Street Capital. His early days at the quantitative trading firm, as detailed in Michael Lewis’ biography “Going Infinite: The Rise and Fall of a New Tycoon,” weren’t without significant events, including a notable $300 million loss linked to the Jane Street 2016 Election trading strategy.
Upon joining Jane Street in 2014 after graduating from MIT, Bankman-Fried’s compensation quickly rose to $300,000 in his first year. He was on track for a substantial $1 million bonus before his departure to launch Alameda Research in 2017. However, it was his involvement in a high-stakes bet during the 2016 election that marked a pivotal, albeit costly, moment for both Bankman-Fried and Jane Street.
The 2016 Election Prediction System at Jane Street
During the lead-up to the 2016 presidential election, Jane Street’s traders anticipated a downturn in global stock markets if Donald Trump were to win. Seeking a competitive advantage, the firm tasked Bankman-Fried with developing a system to predict election results rapidly. This jane street 2016 election initiative was designed to give them an edge in trading based on real-time election outcomes.
Bankman-Fried’s approach involved delegating responsibilities to traders, each focusing on specific states’ voting data. The system proved remarkably effective. Jane Street’s predictions often preceded CNN’s announcements by minutes, and in some instances, by hours. This speed allowed them to execute trades before the broader market could react to the news, a significant advantage in the fast-paced world of quantitative trading.
Alt text: Sam Bankman-Fried, former CEO of FTX, during his early career, highlighting his time at Jane Street Capital and involvement in the 2016 election trading strategy.
One particularly striking instance occurred in the Florida panhandle. Jane Street’s system called the state five minutes before CNN, revealing a strong pro-Trump sentiment that dramatically shifted Trump’s perceived odds of winning the presidency from 5% to 60% within Jane Street’s model.
According to Lewis’ account, Bankman-Fried recounted the moment, “We even had time to freak out, to think there must be a typo, to see that there wasn’t a typo, and say ‘Fuck it, let’s sell.'” This rapid analysis and decision-making were central to Jane Street’s strategy during the 2016 election.
The $300 Million Election Wager Gone Wrong
Based on their prediction system’s insights during the jane street 2016 election, Jane Street placed substantial bets, including a multi-billion dollar short position against the S&P 500 and $250 million against other international stock markets. Initially, as election results rolled in, the trades appeared highly profitable. Bankman-Fried reportedly went to sleep believing it would be one of Jane Street’s most successful trading days ever.
Alt text: Donald Trump during the 2016 presidential election campaign, a key event influencing Jane Street’s trading decisions and Sam Bankman-Fried’s strategies.
However, the market reacted unexpectedly. Three hours later, the US stock market rallied significantly. This unforeseen market movement turned what was projected to be a $300 million profit into an equivalent loss. As Bankman-Fried described it, “What had been a $300 million profit for Jane Street was now a $300 million loss. It went from single most profitable to single worst trade in Jane Street history.”
This $300 million loss during the jane street 2016 election period became a defining moment, illustrating the inherent risks in even the most sophisticated trading strategies and the unpredictable nature of market responses to global events. Despite this setback, Bankman-Fried’s early career at Jane Street provided a foundation for his future ventures in the cryptocurrency world, though ultimately leading to his downfall and current legal battles.
