Jane Street barred from Indian markets as regulator freezes $566M

(www.cnbc.com)

518 points bwfan123 | 5 comments | 06 Jul 25 14:03 UTC | HN request time: 1.033s | source

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cs702 ◴[06 Jul 25 20:47 UTC] No.44483909[source]▶

According to Indian regulators, every trading day Jane Street would:

1) buy large volumes of stocks and/or stock futures that are part of an index tracking India’s banking sector, early in the day,

2) subsequently place large options trades, betting that the index would decline or volatility would spike later in the day, and

3) later in the day, cash out of the large long positions, dragging the index lower, making far more money on the options trades than on the long positions.

Jane Street can and likely will claim the firm was only arbitraging away pricing inefficiencies, nothing more, nothing less. It was just business as usual, etc., etc.

However, given the scale of the operation, Jane Street's actions sure look like textbook market manipulation. Calling it like I see it.

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naveen99 ◴[06 Jul 25 21:10 UTC] No.44484082[source]▶

>>44483909 #

Ok, but what moron was selling them the puts , and not seeing the pattern after a couple of days of this ? Sebi logic seems questionable.

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pclmulqdq ◴[06 Jul 25 22:20 UTC] No.44484626[source]▶

>>44484082 #

I assume the moron in question was using Black-Scholes or some similar formula to price those options, and refused to update their prior when they lost money day after day. This happens quite a bit in derivatives markets.

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1. rybosworld ◴[06 Jul 25 23:31 UTC] No.44485128[source]▶

>>44484626 #

Black-Scholes is rarely used to actually price options. It's most commonly used to back out what the current implied volatility is.

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2. pclmulqdq ◴[06 Jul 25 23:33 UTC] No.44485138[source]▶

>>44485128 (TP) #

Things like Black-Scholes (using past volatility of the underlying to model the probability distribution in the future) are often used by market makers to price options, but the vanilla version never is.

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3. rybosworld ◴[06 Jul 25 23:45 UTC] No.44485215[source]▶

>>44485138 #

Any market maker pricing options with Black-Scholes won't be a market maker for long.

Black-Scholes is just a customer-facing description of the option (i.e, it provides greeks that everyone can understand). But it isn't used as a starting point.

In practice, MM will back out what the implied volatility is from current prices. Then a stochastic volatility model is calibrated against that.

https://en.wikipedia.org/wiki/Stochastic_volatility

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4. mcakes ◴[07 Jul 25 02:52 UTC] No.44486308{3}[source]▶

>>44485215 #

No - no market maker is using stochastic volatility. (L)SV is only used for exotics. Market makers use a tricked out Black Scholes where the 'secret sauce' is in how you apply the chain rule when you calculate the greeks.