Not many people are familiar with dark pool trading and unusual options activity. What does it mean? Where does it fit into the financial world of trading equities? Dark pool trades are large blocks trades that take place in private exchanges and away from the public’s eye. Dark pool is simply referring to a lack of transparency and increase of confidentiality for these trades. One might ask, why do larger orders take place in dark pools? Most of these dark pool orders will be conducted by larger financial institutions with the purpose of reducing the influence these large dark pool trades have on the market price. In short, a large buyer or seller is looking to get in on a large order for the best price without driving the price out, just yet.
Dark pool trading and unusual options activity allow investors to follow the smart money. By smart money we are talking large trades and options flow that are fairly one directional and where you can see an intent. When I trade I’m looking for unusual options volume that might be coming through some tickers on my watchlist. As a trader, not only do I want to see volume, but I also need the volume to come into my trades. These trades allow me to put the pieces of the puzzle together of what is happening with the trade. Is the player opening a position? Closing a position? Are they hedging and expecting some downside risk? Are they hedging with opening a long position on PUTS or are they selling a covered CALL to collect premium. We don’t know the intent of every big trade, we don’t know if it is a buy or sell. That’s my objective as a trader, is to get the bigger picture of what is happening behind the scenes with smart money plays. Most likely for unusual options activity and dark pool orders a player is either trying to enter or exit a large position without showing intention.
If you are studying dark pool trading, unusual options activity, and looking at your charts. You will look at your support and resistance lines, you will see your prime entry points and trading ranges, then you know there is some dark pool activity happening in some of your tickers. All this data will allow you to piece together the direction of the option flow as it comes through the SwaggyStocks unusual options activity feed. All of a sudden these lone puzzle pieces start to build a picture that is more clear, you can almost see what is happening in those trades right in front of you. That will be your signal where you can follow the smart money and make better, more clear and concise decisions about your trading.