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Understanding Dark Pool Prints

dark pool

Dark pool print orders can only be found on private exchanges and are only accessible to institutions that cannot be accessed by the general public. At the moment, it is estimated that about 40% of all institutional trading happens on these “shadow” exchanges. When large investors are looking to trade massive equity blocks, they’ll look to buy or sell their positions to major banks or firms who can take on that large premium and provide faster liquidity while also providing lower transaction costs.

One major benefit of dark pools is that institutions who would like to sell one million shares of AAPL for example, can do so without impacting the public markets in a negative way. Something to understand is that there is not a public order book available. What this means is that the buyers and sellers of these large blocks remain hidden and do not disclose their trading intentions. Only after some time are the actual details of the trade released to all the major exchanges and made available on the tape.

Tips on trading dark pool prints

Since these orders do not provide us with clear intent on whether the trade was a buy or a sell, we can look at various strategies for clues that can help us get a clearer picture of what could be happening off the exchanges.

Dark pools and options order flow data

One of the best ways to gauge sentiment is to combine it with options order flow data. When you’re able to see both data sets, it is much easier to draw conclusions of whether a possible bullish or bearish breakout is imminent. We can look at the following example on Twitter (TWTR):

On Cheddar Flow, we spotted a large dark pool print come through right at market open with a couple more to follow on September 18th. Looking at the options order flow data, we saw that there was strong bullish sentiment with 83% being on the call side. This was a strong indication that the dark pool orders were being bought by institutions. 

On September 23rd, TWTR surged after Pivotal Research upgraded the stock to a buy.

Look for trades that don’t hit the tape as much

If you notice a trade that doesn’t come through as frequently, check the historical data to get a better sense of how “unusual” this order is. This may mean an institution is starting to build a position in the stock.

Additionally, pay attention to the stock’s average daily volume. If the block order coming in takes up more than 30% of the daily average, this makes the dark pool print very significant and worth watching.

Use the strangle options strategy

If you’re still unsure of the direction and are eager to place a trade, we recommend implementing a simple strangle strategy to help you minimize losses. You can follow this setup:

  • Try to get some time behind the trade. Look for a contract that is 4 weeks out and slightly out of the money, if possible.
  • Keep your contracts even. If you buy a call option for $1.00, look to purchase a put option for $1.00 as well.

When should you cut losses? This depends on how long you intend to hold. For example, if you’re doing a day trade, it’s probably wise to quickly cut out of the losing position soon after it starts going against you. However, If you’re holding for a couple of days or weeks, it might be wise to just let the losing position go to zero. In either scenario, it’s best to stay hedged.

Dark pool signature prints

Any order labeled “signature print” is reported about 24 hours late. These orders are actually traded internationally particularly through a European trade desk which allows them to be reported late. Signature prints mainly cover these ETF’s (SPY, QQQ, IWM, DIA) with SPY being the most active one.

When this information is utilized correctly, this can provide powerful insights into possible market direction. We highly recommend you watch this video that provides more in depth analysis on these type of trades.

Final thoughts

In all honesty, it really doesnt matter if we are able to see if the orders were buys or sells. If someone bought a very large position, that also means that someone had to sell that position. In the end, what really matters here is price action.

If you’re looking for real time options order flow and dark pool data, Cheddar Flow provides them all in one place for you. See all the information as it hits the tape in real time and be able to search historical data points to understand general market sentiment.

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