Election Night Bet

 I recently reviewed "Going Infinite" Michael Lewis's book about the rise and fall of Samuel Bankman-Fried (SBF) and his cryptocurrency exchange FTX.  The book contains some stories about SBF's time at Jane Street Capital.  One of these stories is about trades Jane Street made on election night 2016.

As related in the book (pages 67-71) Jane Street had noted that the financial markets were moving in response to events seen as changing the odds as to whether Hillary Clinton or Donald Trump would win the 2016 US Presidential election with a Trump victory seen as bearish.  Jane Street decided that if they could figure out on election night who was winning faster than anybody else this would give them a profitable edge as they could trade ahead of (front run) the markets. So with SBF playing a major part Jane Street set up a team to rapidly analyze the returns on election night as they came in, update the odds on who would win, and trade on the new information.    By the book's account this worked well with Jane Street acting on updated information minutes before the rest of the market got the word.  To quote the book "... Around one in the morning, after twenty-four thrilling hours without a break, Sam left the trading desk to get some sleep.  The markets seemed to have fully digested the news of Trump's victory.  Jane Street was sitting on maybe the single most profitable trade it had ever done.  ..".  

But then things go wrong.  Again quoting the book "Three hours later he returned to find that the markets had changed their minds about the likely effect of Donald Trump on the world's stock markets.  .. "What had been a three-hundred-million dollar profit for Jane Street was now a three-hundred-million dollar loss," said Sam ..".

But this account leaves an obvious question unanswered.  Why didn't Jane Street nail down their three-hundred-million paper profit by closing out their positions at one in morning after the markets had "fully digested" the fact that Trump had won?   They no longer had an information edge on the rest of the market so leaving the positions on was taking a risk without any expected gain.

Possibly the markets at one in the morning were not liquid enough to easily close out their positions.    However this would suggest the markets had moved in their direction because of their trades and not because the markets were belatedly realizing that Trump was winning.  But then their three-hundred-million dollar paper profit was at least in part an illusion as closing out their trades would inevitably  move the markets against them and they would not be able to realize the full paper profit.

Or possibly there was another reason.  But as told the story doesn't really make sense.  This is one of the weaknesses of Lewis's book, for whatever reason he seems unduly accepting of SBF's view of the world.