Options market maker Jason McCarthy finds martial arts help him in the trenches of Wall Street -- and the occasional street brawl
By: |
Karen Hartline |
Issue: |
February/March 2006 , Page 46 |
I wanted a profession where if you're good, you can make a lot more than if you're just average.
Back in the frothy days of early 2000, when dot-coms still made market geniuses out of bus drivers, Jason McCarthy, then a fledgling equity-index options trader at Susquehanna International Group, found himself having more than a few drinks at an Italian restaurant in lower Manhattan.
When McCarthy's group decided to call it a night, a drunken troublemaker followed them outside, talking trash before suddenly giving one of McCarthy's broker pals a wicked, violent headbutt. Big mistake. Jason McCarthy is a third-degree black belt in jiu jitsu.
"I put a chokehold on the guy's carotid artery," McCarthy recalls, matter-of-factly. He says if he had held his grip lock even a few more seconds, the guy likely would have passed out. But since headbutt boy had suddenly become quite docile, McCarthy, then 24, eased his grip. Problem solved. "I just kept him bent backwards and walked him back inside," he says. Now 30, McCarthy still kicks ass as an equity options market maker at Jane Street Capital in Manhattan -- and as a martial-arts instructor. He spends a good amount of his downtime in a second-level loft in Soho, where he bows in as sensei and owner of a dojo, New York Jiu Jitsu.
"Often you hear trading compared to skill games like poker or chess, but in my view, jiu jitsu is even more closely correlated," McCarthy says. "In both, your physical movements need to be in lockstep with your thoughts." Decisions, in other words, must be made within a split second; those who have to contemplate their every move are going to get crushed. More than that, jiu jitsu emphasizes using an opposing force's strength against him. McCarthy, who trains five hours a week and spends many hours teaching others, sees his ability to redirect energy as precisely relevant to trading.
In both jiu jitsu and trading, the subtlest motion by an adversary can reveal volumes about his plans, so an effective counterattack comes down to instincts. McCarthy's training enables him to pounce instinctively on profitable opportunities when new information streams in; those who stubbornly or lazily stick to their preplanned positions without rolling with the scenario as it unfolds significantly underestimate the power of the marketplace. McCarthy recalls when a semiconductor company called Xilinx announced it was being added to the S&P 500 Index effective a few days from the time of the announcement. Suddenly, out-of-the-money November call options were much more valuable than they had been just prior -- but only for traders, McCarthy among them, who realized the effect of this news immediately.
Jiu jitsu instruction involves a lot of what-ifs and mock situations. It's called randori in the dojo, and there's a block, strike, throw, lock and hold for every scenario. Similarly, McCarthy helps lead Jane Street's education program for new hires, conducting drills via mock trading sessions.
"He's a patient teacher," says Antonio Avila, a fellow Jane Street trader and a martial artist himself. "Doing this further strengthens new hires' understanding of all option-pricing relationships so they can value individual and combinations of options," he says.
Growing up in Lake Ronkonkoma, New York, on Long Island, McCarthy became interested in martial arts as teenager, in part to defend himself from his older brother. "He could kick the crap out of me," he recalls. In 1994, as a sophomore at MIT, McCarthy started his own jiu jitsu club.
All that competition and discipline drew him toward trading's sink-or-swim nature: "I wanted to go into a profession where if you're good, you can make significantly more than if you're just average." Within his first few months at Susquehanna, he began trading on his own.
He attributes his fast-paced success in part to his martial-arts training. Because he knows he can handle himself in any confrontation, there's a certain spillover confidence that permeates his approach to the markets. "To be a good trader, it helps to know that you're the best or one of the best traders in the room, and I've always been bullish on my abilities."
"He's as technical as they come," Avila adds. "Jason has this great analytical mind, but he also has tremendous communication skills, which is unique."
In 2001, McCarthy jumped to Jane Street, a market-making firm founded in 1999 by ex-Susquehanna traders Mike Jenkins and Tim Reynolds. The startup recruited McCarthy to run its operation on the floor of the American Stock Exchange. He used the lag time between gigs to open his dojo.
The firm does all proprietary trading. It doesn't have any customers; thus, it trades the partners' and managing directors' capital -- about $100 million, levered up sizably from there. Respected in the derivatives arbitrage world, Jane Street makes markets in exchange-traded funds, equity and fixed-income futures, equity options and index options, and serves as the specialist in more than 250 derivative products.
In real-world skirmishes, McCarthy teaches that avoiding confrontation and walking away is always a better bet. But sometimes you have to fight. One of his students recently thwarted a knife-wielding attacker by using a move McCarthy had taught him. And years ago, while working the door at a fraternity party at MIT, McCarthy put an entire group of unruly crashers in the hospital. "It's really easy to hurt someone if you know how," he says with a shrug. Fighting words -- but from a guy who can back them up.