Let’s play a little game of visualization: it’s your first day on the options desk and you’re surrounded by seasoned traders. They’re all talking about the action—and you don’t understand a thing that they’re saying. It’s almost as if they’re speaking an entirely different language.
You mean your econ classes didn’t prepare you for this?
Somewhere between slang and incoherent thought, “trade speak” is in a league of its own. From adapted meanings to newly created terms used to describe everything from the type of action to tickers to order types, the trading world is full of terminology that really has no place outside of the screens and the floor.
Officially known as an Intermarket Sweep Order (ISO), a Sweep is a liquidity destruction device. Not actually, but its impact sure sucks all the available liquidity out of the market. When dealing with Sweeps, it’s important to understand some market structure behind how they operate.
In application, a Sweep order occurs when a traditional Block order is split at the exchange level. What this means is someone comes in with an order that is greater in price/quantity than what the market has readily available at multiple price levels. When this happens, the Block gets split and is sent across the various exchanges (BBO by BBO) until it fills the entirety of its desired quantity or there is no longer any liquidity available within the price confines of the order.
Example: Say you have a market trading $1 x $1.01. You want 1000 options, but you know that you’re going to have to be willing to take a hit on the price in order to grab that kind of size. So, you place a buy order for 1000 at $1.10—in other words, you want 1000 contracts and are willing to pay as much as $1.10 per contract to get them.
As your order hits the market, it instantly fills all the liquidity at $1.01, and continues to take all the liquidity from each price level until it achieves either the 1000 contracts you want or reaches $1.10 and there is no more liquidity for you to pull from.
Wall St. Jesus first designated these orders as Sweeps because they literally sweep the book—taking all the liquidity at each level across each exchange.
When a Wiseguy uses a Sweep, it means they’re hungry to get their order filled and they’re coming in with size, and that means they’re likely to move the price.
Sweeps are BY FAR the most important type of order we track in the Wiseguy Alert feed.
Multi-sweeps are what they sound like: when multiple sweeps happen in the same name within a close enough timeframe to be relevant to each other.
Sometimes it’ll be action in the same expiration or strike, other times they’ll spread the action out across expirations to buy themselves some extra time.
In any case, when multi-sweeps are happening you want to pay attention.
It should go without saying that the more Sweeps there are in a single direction, the stronger an indication it is that momentum is going that way.
And when it comes to Multi-Sweeps vs. Sweeps, that general theory applies.
Being that Multi-Sweeps indicate that there is continued attention from one or more Wiseguys, their presence holds slightly more weight than a normal Sweep.
More attention = more volume = a better read on what’s going on.
That’s why we closely track Multi-Sweeps in the Wiseguy Alerts.
Though some prefer to define Blocks by dollar amount, others prefer contract count. The truth is, it doesn’t really matter how you define it: a Block is a seriously large order getting executed all at once.
It tells you that someone, big, is in a real hurry to get their fill.
Blocks often get split at the exchange level and become Sweeps as a result. Size is size, split or whole.
By now you’re probably thinking to yourself, “geez, Blocks and Sweeps are really similar”. Yeah, they are. And while the difference between the two lies solely in whether or not the order is split at the exchange level, their meanings couldn’t be more polar.
A Block tells you that a Wiseguy is in a hurry to fill, but it also tells you that there is more liquidity hidden on the BBO. If there wasn’t, the order would need to be split and would turn into a Sweep. As a result, a Block doesn’t have the ability to move the market as immediately as Sweeps, which hold a slightly higher value to intra-day trading.
We track Blocks in the Wiseguy Alerts, even though they aren’t as immediately important as Sweeps and Multi-Sweeps.
When a Block is too large to fill at any one liquidity provider, it gets “split” into smaller orders executed across different exchanges and liquidity pools. As such, Blocks and Splits are extremely similar and have an almost identical effect on markets.
Questions or suggestions?
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