You’ve all heard me use this term before, probably heard others out there use it as well. I don’t know the origin of this term coming from the mouth’s of others, but I figured I’d drop a quick example of how I use this term and how it relates to trading so you can avoid getting “Daniel Larusso’d.”
Let’s use this classic clip, from which this term was derived:
Let’s modify the cast in this explanation…
John Krese– The Stock Market/Notion of Pain applied to Trading
Johnny Lawrence– Professional Trader/Market Predator
Johnny Lawrence’s Leg– A stray order to take our a prior low in price
Daniel Larusso- You/Unsuspecting retail trader
Daniel Larusso’s Leg– Your stop order
Let’s recreate the scene in a chart of Las Vegas Sands $LVS.
If you zoom into recent price action, $LVS came down and found support a couple weeks ago, where I took on a position.
It got a nice little bump, but has since rolled over coming in to test support. In terms of strategy, if you are long from this $52 area, where is your stop? Easy! It’s right under the lows at $51.50 (Daniel Larusso’s leg).
We all know this is an epic spot to engage this stock. Knowing this, what’s the easiest way to accumulate more shares here (In my John Krese voice)? I could throw out a downgrade, or I could simply drive the stock lower to run all open stop orders. This helps me increase my position at the expense of Average Joe Retail aka getting “Daniel Larusso’d.”
I send orders to drive $LVS downward (aka Johnny Lawrence), sweep the leg (run stops) and accumulate all the new supply created by this move. This is why a support break turns into a responsive buyer. All at the expense of some poor bastards leg.
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Jeff off topic but what do you think of XLE and ERX down here??
Oversold.
Thanks for the detailed explanation and examples Jeff.
It was definitely worth a write up. Thanks for the idea.
the play is great….but the Feb24 calls are simply out of time now. 15 days grinded away.
reload?
I reloaded last week after I realized I was getting Larusso’d.
Vince Lombardi once said “I never lost a game I just ran out of time” .
That’s casket material for sure.
https://www.youtube.com/watch?v=Lcw6xBaCaXM
Thanks OA for translation. Do you like LVS as long term hold (good div), or just quick trade?
Long term chart looks compelling, actually. Not as good as my $BYD pickup a couple years back though. You can have the Sands, I’ll take Sam’s Town Hotel & Gambling Hall.
I’ve been dripping into LVS and absolutely love the setup. This type of analysis is why I keep coming back here, really top notch stuff.
Also, MEET is starting to move. That one has some serious potential. Some asshole is throwing out ridiculous asks on the longer term contracts… You think there’s anything to be gleaned from that?
Side note – I made back all the losses from yesterday today. I think I may need to dial my vol down and rethink my hedging strategy. It did not work as advertised.
“Anything to be gleaned from that?” I’d want to meet the asshole first. Maybe ass him a few questions.
Thanks! Found it interesting.
I’ve seen “sweep the leg” so often I now wait for it to occur before I buy in total on a new position. And when I see that, I usually buy a larger percentage.
Smart way to adjust for it.
Great idea!
TWTR gonna sweep the leg too?
It already did. That’s what I waited for to buy.
Sweeping the leg: like EUR/USD earlier today
Is gonzaga gonna finally make the final 4 this year???
No, they’ll get knocked out second round.
I am in LVS stock as long term. Your BYD got great looking chart, though I can collect fat div. Will see in a couple of years. Thanks OA!
Looking at moving cash into oil positions if it sweeps the leg soon.
Good call on keeping people out of AMZN puts when you determined the set up was no longer there. Hopefully they listened to you…
That’s why I emphasized that $820-25 area. Above that was definitely unbullish.
I saw a few people want to do it again higher, but the higher it went…there was no way it wouldn’t breakout.
Covered yesterday. This one burned me good.
Shoulda listened to you….. friendo. ;-D
I tried. I knew when you took that tone you were walking in front of a train.
I may have been a tad sour on your grandpa comment regarding that BMY play.
I nailed the entry in that one, at least. Grandpa’s be damned.
I get it. But in general, only idiots buy grandpa stocks in a beta chase. When you think about it, the less sense it makes.
Who’s beating their benchmarks in some Bristol Meyers? Just Grandpa, assuming he doesn’t die first.
I understand it’s not your style. That trade had a fundamental tilt for me. The sell off that resulted from the Merck news (twice) was completely overblown and they were clearly undervalued.
My question is this – I had March 52 calls, and the IV exploded higher over the course of the move. Doesn’t the higher realized vol vs. IV help offset the “grandpa” nature of stocks like that?
So maybe you just asked the wrong fellow?
Higher implied means the market is expecting news, developments, or event driven movement.
It can offset a beta of 1 or less, providing the stock does what the market is implying. If not, you’re screwed.
BMY starting realizing higher vol, which drove up IV after I bought in. IV was quite low when I bought.
My point is, the beta of the stock shouldn’t matter if you expect realized vol to increase. BMY dipped into a vol pocket and started have +2%, which is rare.
I made money off the price action and the increase in vol, thus offsetting the grandpa nature of the stock. So you can trade the grandpa names as long as there’s some reason to expect realized vol higher than IV.
$BMY has been at its highest levels of implied ever. FWIW, rule of thumb is to buy cheap options, not overpriced ones.
Odd. I look at current IV vs. 30-day trailing average. The contracts were significant below that when I purchased.
Whatever you’re looking at is probably factoring in the massive vol spike from when it collapsed 30%.
Just looking at the last few weeks in relation to history.
TSLA is up about 30 percent year to date and about 30 percent in three years. Me thinks if it finds its footing after earnings it will be a replay of late February 2014.
I love people posting all the overbought/greed indicators. All that shows is that the path of least resistance is up until it isn’t. They forget it is better to wait until it isn’t before trying to call a turn.
OA Thoughts on rails here? I’m looking at Canadian Pacific, but U.S. rails have similar profile.
That trade was set-up last year. Why now?
http://ibankcoin.com/option_addict/2016/07/26/double-take-at-the-trannies/
bought GTLS $40 calls
nope
Hi OA,
Had I been in on the LVS trade, I would have placed my stop below 51.50 as well…just wondering how you determined what your stop-loss level is. Is it based on the volume profile?
Thanks,
Aj
I risk my premium in the options I buy.
Thank you!
Would this price action in $XBI on the 60-min suggest an $FCX-like broken trend with an equal (or lower) swing low? Or a sweep the leg (to keep my question relevant to the subject matter at hand)? I am assuming the former, not the latter.
$FCX going to primary trend at $13
Long $LN here.
Would like to see this move soon. I happened to pass on SOHU, BABA calls for this…
FIVE worth watching here. Been coilng for a while.
Interesting – solid setup, retail ETF membership and looks like decent support in the 38.50-38.75 area…
Seasonality looks good for LVS right now also. Typically a good time to buy.
OA, do you think we just sweep the (short) leg in gold here?
Yeah, I discussed that possibility in AHWOA a week or two ago. Limited upside, but treat this as an area IMO.
Just shorted GC at 1248.5
OA, don’t mean to be a pain on LIXXF, I like the stock and looking for a position here. News last night shared being sold at $1.90 Canadian which is $1.45 US. Do I wait for it to trade down to this area? Or don’t you think it will? Thanks again!!
What’s the hang up on this stock? Just leave it?
Gnc anyone?
not now chief. i’m in the zone.
$AZO?
Own a starter in shares.
Sentiment expressed in other areas besides the market:
“For four decades, Die Welt, one of West Germany’s leading newspapers, refused to acknowledge the existence of an East German state. Since the paper’s editors expected the communist regime to collapse within a matter of years, they put scare quotes around its initials whenever they discussed the German Democratic Republic (GDR). While other papers reported about the policies pursued by the GDR, Die Weltun failingly wrote about the “GDR.”
“Sometime in the summer of 1989, the paper’s leadership finally decided to give up on the pretense that the East German regime was on the verge of collapse. The communists had been in power for so long, and seemed so well-entrenched, that the scare quotes had become an embarrassing denial of reality. On 2 August 1989, reporters were allowed to drop the scare quotes when writing a bout the GDR for the first time in the paper’s history. Three months later, the Berlin Wall fell. On 3 October 1990, the GDR ceased to exist.
“The editors of Die Welt radically misjudged the signs of the times. At precisely the moment when they should have realized that support for the communist regime was dwindling, they finally reconciled themselves to its durability. They were hardly alone. The collective failure of social scientists, policy makers, and journalists to take seriously the greater confidence in the durability of the world’s affluent, consolidated democracies.
Want to talk about failing to see the sea change around you?
Look no further than the German Bund.