Bagging the street is a trading strategy in which a trader or traders try to profit from price changes created by large purchases of stock, called block trades. Traders who practice the bagging the street strategy rely on access to real-time trading information, which is something most everyday traders don't have.
In the case of bagging the street, a trader sees a trade get entered for a large quantity of shares of a certain stock. Aware of how the brokerage back office fills such large orders, the trader attempts to sneak in first and then ride the coattails of the block trade.
For the purposes of this discussion, Trader A sees a block order entered for 100,000 shares of ABC. Trader A assumes the trade will take some time to fill and, when it does fill, the purchase will drive the price of ABC up, at least in the short term. He or she attempts to place a trade to buy ABC at a lower price and in a smaller quantity to beat the block trade into the market in terms of execution.
After the block trade is executed, Trader A will sell ABC for a higher price due to the large share purchase. In short, Trader A used an unfair advantage, given the knowledge of the block trade if it is large enough to impact stock prices.
Related or Semi-related Video
Finance: What is a Block Trade?22 Views
Finance a la shmoop.. what is a block trade? yeah you think this was the yellow Marvin [A monopoly board]
Gardens trio bartered for the green Pennsylvania Avenue set but it's not
instead a block trade happens when a huge, you know block yes clever naming
there of shares needs to get sold think company founder just got divorced and [Man and woman sitting on a sofa]
old husband wants the dough fast she just wants to get rid of him you know
lose 185 pounds so of her 28 million shares she or rather her bank or brokers
put together a group of a half a dozen buyers who then buy the stock in a clean [Stock is dusted]
block trade there's a strange paradigm here sometimes companies shares are
thinly traded or not liquid meaning that there isn't a ton of volume every day in
the stock and large institutions wanna buy in big like to the tune of 5 million [Big institutions buy stock]
shares but if they buy 50,000 shares a day in the market well they'll likely
move the stock from say 18 bucks a share to 25 bucks a share by the time they're
done buying so sometimes supply of block trades is constrained and the trade
usually with price negotiated well beforehand goes off at a premium to
where it was regularly trading like that eighteen dollar figure maybe implies a
block trade that happens at 20 bucks the seller is usually happy because if they
dump the shares at fifty thousand a day into the market while they'd likely [Dump truck dumps stocks on the floor]
drive down the stock price to fifteen dollars or less in the process got it?
and this way they got a $2 premium above that 18 bucks 20 minus eighteen two
dollars there yeah and the institution is happy because now they own the [Institution smiling]
however many millions of shares that they own at a twenty dollar base price
instead of something likely much higher if they've gone into the market and
bought em, so that's when supply is constrained in a thinly traded low
volume in demand stock much more common as a block trade where there's a whole
lot of supply coming on board and not nearly the demand of buyers or investors
to take over the stock so it trades at a meaningful discount to whatever price it
was trading at like in the eighteen dollar a share case well maybe that
block trade happens at 17.20 or 16.50 or
thereabout so that's a block trade and here's a blockhead yeah ask your parents [Blockhead figure appears]
if you don't get the reference here...
Up Next
What does a financial analyst do? Financial analysts research the market and recommend investments. There are quite a few licenses required to be a...
What is a whisper number? The rumor mill. The gossip chain. The whisper number is the Wall Street version of those word of mouth speculations. Whis...
What is a Breakaway Gap? A breakaway gap is the point in time when a stock price changes direction (it goes from increasing to decreasing or vice v...
What is the Bid-to-Cover Ratio? The Bid-to-Cover ratio compares the amount of bids made for Treasury securities to the amount that is actually sold...