Last week’s introduction to Dark Pool trading had a big payoff in only three days. Here’s what happened, as well details on the latest Dark Pool trade, and how it works even on disaster days like yesterday
Something big is about to happen with the stock, Schlumberger. Get in position …
That’s the gist of the message we received on March 3rd.
It wasn’t clear which direction the stock was headed. All we knew from the notice was that a big move was coming. So, the instructions were to buy both a bullish and bearish position — that way we’d be covered regardless.
By the end of the trading day, Schlumberger’s stock price was sliding. The next day, it fell further …
Just two days after the “buy” notice, we got word to close half of the bearish side of the trade … for a ROI of 108%.
The following day, we received instructions to sell the second half of the bearish trade. This time, locking in 180%.
A simple, blended return of 144% on the bearish side of the trade … in just three days.
Here’s Schlumberger’s stock since the initial trade-notice through last Friday.
So, what exactly happened here?
Well, it was a “Dark Pool” trade — a type of market strategy that a small group of professional traders use to generate millions of dollars every year. I’d say not one in 1,000 investors knows about it — and not one in 10,000 are able to benefit from it.
We introduced you to the Dark Pool, and this Schlumberger trade, last week. Today, let’s circle back and fill in the details so everyone knows what happened. Then, we’ll fill you in on a second dark pool trade that was issued this past Friday … and already closed out for huge returns.
And you know yesterday was a market disaster, as the Dow plunged 2,000 points. So, we’ll address how this strategy continues to make money even during the most volatile of markets.
Let’s jump in.
***How to trade the “stealth” stock market
We profiled the “Dark Pool” in our March 4thDigest. If you missed it and want to dig into all the details,click here to access that issue, but I’ll provide the highlights here so everyone can follow along today.
For you and me, buying stocks is easy. That’s because the amounts we deal in are tiny relative to the number of shares outstanding, and relative to the market values that public companies have.
But institutional investors — think pension funds, large hedge funds, and insurance funds — they don’t have it so easy.
The large institutional investors of the world have a ridiculously large amount of money to invest in stocks and bonds and other assets. For example, a single large institutional investor can manage over $20 billion in assets.
But moving $20 billion into high quality investments at good prices is a logistical nightmare.
Think about why — giant fund managers can’t place orders to buy or sell their entire positions at once. That’s because those massive orders would overwhelm the amount of interest from the other side of the market … which would cause massive share price swings up and down. This would make it impossible for the big manager to get a good price on his position.
The reality is that when an institutional investor makes a big move in a stock, it can easily push that stock’s price around by 5% – 10% in the span of a week.
So, how do the big boys make their massive trades without tipping off other investors in the market?
The Dark Pool.
***What is the Dark Pool, and how can you benefit?
Dark Pools are private stock exchanges where the “big boys” on Wall Street place their trades. They’ve existed for decades on Wall Street.
Regular investors buy stocks on public exchanges like the NASDAQ, AMEX, and the NYSE. But big Wall Street institutions like Goldman Sachs and JP Morgan don’t. They trade on private exchanges — that regular investors don’t have access to — known as the Dark Pools.
In today’s market, the Dark Pool is a series of networks that allow traders to buy and sell large blocks of shares without running the risk that other traders will see their hand.
How does Goldman Sachs sell 20 million shares without moving the market down? They don’t have to report one single share being sold until their entire order of 20 million shares is filled.
Large traders given up to three hours to report their trade to the trade reporting facility (TRF) that trickles down to the consolidated tape.
Now, wouldn’t it be great if you could monitor the buying and selling activity of giant institutions and anticipate what stocks and ETFs are poised to move 5% – 10% in the span of a week?
It turns out you can — which is exactly how the bearish-Schlumberger-trade generated a return of nearly 150% last week.
***Meet Stefanie Kammerman — a legendary Dark Pool trader
Stefanie is a trader who cut her teeth trading for Shonfeld Securities, one of the world’s largest and most prestigious proprietary trading firms.
Nicknamed “Trading Goddess,” she eventually left Shonfeld and trades on her own today, using Dark Pool information you and I could never easily get. She tracks institutional activity that might present a huge trade opportunity — and fortunately for us, she passes along those details.
For these trades, fundamentals don’t matter. Forget valuation, or earnings, or book value, when it comes to the Dark Pool, you’re simply following the money. What are the big boys doing, and how do we follow along?
***How does it work?
Occasionally, Stefanie will use technical information to suggest the likely direction of the Dark Pool trade — either bullish or bearish. But as we saw with Schlumberger, many times, leading indicators aren’t there, you’re only seeing huge Dark Pool “prints” (a “print” is the record of a market transaction, including basic information such as the time, price, and share size).
In such a case, you take the approach Stefanie recommended for Schlumberger, which is to establish both a bullish and bearish position. You’re covered both ways. With Schlumberger, the bullish side of the trade didn’t go anywhere. So, that invested capital went to $0; but as you know, the blended return on the bearish side of the trade was 144%. So, even factoring in the loss on the bullish side, the total return on the entire trade was still nearly 75% … in three days.
What other market approaches do you know which can generate this type of return in that time-frame?
***The latest trade
This past Friday, we received the following notice from Stefanie:
My analysis of dark pool trading in SPDR Select Energy Fund symbol $XLE indicates the stock is poised for a short-term large move. Massive unusual Dark Pool prints are coming in today!
As with Schlumberger, Stefanie liked establishing two positions in this trade — both bullish and bearish. It appeared something big was coming, but exactly what, we didn’t quite know …
… until yesterday.
As you’re aware, markets plunged yesterday in the wake of OPEC infighting and a resulting 31% decline in the price of Brent crude.
As you can imagine, XLE — an energy fund — tanked, dropping 20%.
Yesterday afternoon, just one trading day after issuing the buy alert, Stefanie sent out instructions to close half of the bearish trade. Because markets were moving fast, she provided a sell-price-range that would have hit an ROI of 160% – 550% depending on your price.
This morning came notice to sell the second half for a 370% gain.
Let’s assume Stefanie locked in the lowest gain yesterday, 160%. That means the simple, blended average of her XLE bearish trade was 265%. After factoring in the bullish side of the trade that didn’t go anywhere, we’re still looking at a Dark Pool winner of more than 130% — in two trading days.
***We reached out to Stefanie yesterday to get her thoughts on making money as the markets tanked
As you can see with our results from following the Dark Pool prints, we were probably the only trading room making money in the past few weeks.
The Dark pool alerted us to the sell-off in oil by executing massive prints on $SLB and $XLE …
Trading in the Dark Pool has been much heavier over the past 2 weeks than in the last 2 years.
We spotted very heavy sell prints on the $SPY last month which alerted us to this correction.
We also spotted massive sell prints on unusual ETF’s that alerted to us that the big institutions were hiding their trades.
One thing Stefanie noted was how she’s able to make money, even when she buys both a bullish and bearish position (and one of the positions will obviously be wrong):
We want to make sure we have both sides covered.
Massive prints will cause massive movements in the stock, so we can expect to make a lot more than 100% on the right side of the trade.
As you can see with last week’s results, we sure did …
When the market goes up, everybody makes money in the market, but when it goes down, only the exceptional traders do well.
I have been trained to trade through all market conditions, up or down by following the Dark Pool.
I am super excited to share this with you!
We’re certainly excited.
As we noted in last week’sDigest, this Dark Pool market strategy is how a small group of professional traders make millions of dollars every year. Given the huge gains from Stefanie’s first two profiled trades, even during times of extreme market volatility, it’s easy to see why.
We’ll bring you the next one when we get word.
Have a good evening,