Hi Traders,

A stock gets crushed.

It's down 40, 50, 60 percent, and then it climbs 10 percent from the low.

Now you have to decide: is that the bottom, or a dead cat bounce (a short rally in a falling stock before it drops again)?

On a chart, you can't tell. The bounce that rolls over into a new low and the bounce that becomes the trade of your year start with the same few green days.

I learned to tell them apart on the floor.

I traded on the AMEX and CBOE floors for years, and one thing that happens with dead stock stuck with me.

Nobody wants the name.

It might as well have the plague.

Then one day, out of nowhere, a broker walks into the crowd (the market makers who trade that stock's options) and buys 5,000 January calls (bets the stock goes up) a year out.

That's long-dated, in size, in a name everybody's given up on. The market makers in the pit sold those calls, so now we're short thousands of them and we have to hedge.

So we buy stock. All of us!

Every trader who sold a piece of that order has to buy shares. The stock lifts, and nothing shows up in the news because, as far as the news knows, nothing happened. Yet.

Now the stock sitting on the bottom doesn't look so bad. The institution holds a position it built for a fraction of what the shares would've cost, and the market makers are doing the buying for it. Then people start to notice, and it feeds on itself.

That's institutional order flow: a big fund making a large, leveraged bet (options let you control a lot of stock for a little money). It leaves a fingerprint on the options chain (the full menu of listed options on a stock) before it leaves one on the chart.

Members of Congress get up to 45 days to report a trade, and the fine for filing late is $200. Even then, the report gives a dollar range, not the price they paid. The options chain shows you the trade the day it happens.

How I Use Institutional Order Flow

My colleague Andrew Giovinazzi tracks this kind of flow every day, and I've leaned on his list since it launched.

When a theme in the market catches my interest, I go straight to Andrew's list and look for names that fit. In August, I wanted consumer companies that got beaten down. I might be right about the story, and the products might be great, but if nobody's putting real money into the stock, it isn't going to move.

Flow in the options tells me somebody else agrees with me and has started buying with real money. That's the name I want.

In August, that name was Tractor Supply (TSCO), and it sat on Andrew's list. On August 7, I bought the January 38 calls for $2.10, with about five months until expiration. I figured they'd work over the next month or so, and less than a week later I sold them for $3.00, a 43 percent gain.

TSCO had slipped past my radar. Somebody else had the same theme and started building a position in a name ready to move, while the headlines still read like an obituary. I'd have missed it without the list.

The size shows up in the options chain before it shows up on the chart, and that gap is where I want to trade.

Andrew premieres a research video today. He'll show how he reads these fingerprints and name three stocks where big money is building positions right now. It costs nothing to watch.

I'll be watching. Grab a seat here.

Enjoy the Journey,

Tim