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I am curious about possibilities and theory here. Basically a "problem" with trying to get large positions is that it would move the market in the direction that you are loading up on, therefore making unloading of the position relatively unprofitable.

But lets say your aim was to get a large share position, without placing a large bid.

In theory, couldn't an accumulation/distribution algorithm be used grab as many shares as you want undetected by market makers who would OTHERWISE move the bid after seeing the new demand. At the same time you could by buying options pretty cheaply in comparison, with the sole intent of exercising them after market.


And then after having that large position, you could unload it as one single order knocking out an entire side of the tape. Useful for shaking out leveraged shorts in a squeeze or breaking down a support level in the other direction, because your opinion on price discovery is different than everyone else's - of course.

I am curious about what other roadblocks exist to this scenario, that accumulation/distribution can easily get someone a large random volume weighted average price at the same price levels.

Assuming you had that much capital at your disposal, this is pretty possible yes? I am assuming that without an accumulation/distribution algorithm this would be nearly impossible.

I'm not looking for opinions about this level of advantage over other market participants, I am looking for theory.

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This practice is (a) illegal, and (b) very difficult to pull off in practice and may require huge sums of capital. – Tal Fishman Jan 3 '12 at 16:31
a) not in every jurisdiction, which I never specified. b) not if the market cap isn't that large. I think you made too many assumptions. lets continue talking about roadblocks to such a thing, since getting filled without moving the bid/ask is easy now. – CQM Jan 3 '12 at 18:22
up vote -1 down vote accepted

Upon further analysis, it seems this can be done with FLEX options or block trades if you know the right people.

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