Bagging the Street
What it is:
"Bagging the street" refers to the strategy of profiting from price changes created by block trades.
How it works/Example:
For example, let's assume that Pension Fund ABC wants to buy 100,000 shares of Company XYZ. It places the order with one of its brokers. To fill the large order, the broker has to pay higher prices to acquire such a large number of shares. This high demand for shares drives up the price of Company XYZ shares from $10 per share to $13 per share.
Jane, a trader on the exchange where Company XYZ stock is listed, sees the block trade go in and knows that it will take several minutes to fill the order. She quickly places much smaller buy orders at the current $10 price. These small orders are filled much faster, allowing Jane to buy at $10 and quickly resell the shares at $13 just a few minutes later (after Pension Fund ABC's block trade has driven the price up). This is called, "Bagging the street."
Why it matters:
Bagging the street is a classic trading strategy, but it relies on access to real-time information -- something most everyday traders don't have. Bagging the street is a great example of how information can be the most valuable commodity in the world, and traders will pay through the nose to get access to it.