Blocks, sweeps, and splits — oh my.
More new terms to know.
Contents
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- Block Order
- Sweep
- Split Order
- Summary
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These describe how orders are consolidated in an options order flow.
As such, they are known as consolidation types.
Every options order is logged — whether it be a large order from a multi-billion dollar hedge fund or the very first order from a new retail investor.
These orders are submitted to the order book and logged to the market data tape.
Such data and its analysis are known as “order flow.”
Options order flow refers to analyzing and interpreting the buying and selling activities in the options market.
By examining the flow of orders, traders can gain insights into market sentiment, potential price movements, and the strategies employed by other market participants, particularly institutional investors.
Large orders or unusually high volume can indicate strong conviction or interest in a particular stock or market direction.
This can be a signal of potential price movements or important upcoming events.
Block Order
A large order that fills as one order is called a block.
Blocks could also be privately negotiated orders by large institutions and may involve combinations of options and underlying securities to hedge positions or take advantage of specific market conditions.
Sweep
Many times, a large order is broken up because one exchange may not have the quantity available to meet the demand of that order.
So, that order is broken up into many smaller pieces that are filled out by different exchanges.
They are sent to all exchanges to be filled quickly.
Hence, it may indicate high conviction in a trade idea or when reacting to market-moving news.
This order gets printed to the data tape as multiple smaller orders.
Algorithms looking through the data tape can piece these smaller orders back as they most probably originated as one large order.
The algorithm reports This type of order as a sweep order.
In short, a sweep order is an order that has been broken up and filled by multiple exchanges.
Split Order
A split order is an order that has been broken up and filled by a single exchange.
Split trades help reduce market impact and achieve better execution.
They are common in institutional trading, where order size can be substantial, and precise fills are critical.
Summary
Sweep, splits, and blocks describe how orders are consolidated back to the original order.
Blocks are large orders that are not broken up and do not need to be consolidated.
By taking broken-up orders and consolidating them back to their original size, we can see the real size of an order and where the “big money” (or sometimes called “smart money”) is putting the money.
Some traders like to follow these big orders.
If they do not follow them, at least, it may give them potential trade ideas.
Understanding these terms and their implications can help traders and investors interpret market activity and make informed decisions based on the observed trading behaviors of large market participants.
We hope you enjoyed this article on blocks, sweeps, and splits.
If you have any questions, please send an email or leave a comment below.
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
Original source: https://optionstradingiq.com/blocks-sweeps-and-splits/
