A look under the hood starring my 50% above 50 SMA scan

I utilize Finviz a lot for my stock/ETF scanning and have one particular scan that I run that I thought I would discuss today. This scan has the following settings:

  • Price is 50% above the 50 SMA (Simple Moving Average)
  • Price is over $5
  • Average Volume is over 500K

With this scan, the results return a few stocks each week (only a few times has there been zero results). Sometimes there will be stocks that were acquired show up in the results list so I weed those out manually.

You may be wondering what I do with the results. I typically do one of two things:

  1. Most stocks in the results goes on my “to fade” list – meaning I will Short it
  2. If the stock is really strong, I will consider going Long to ride the trend

This week I chose to focus on $YRCW and $ALNY as “to fade” plays. I initiated a trade in $YRCW on Monday and closed the short when I noticed a Falling Wedge forming (which failed, the stock faded further).

YRCW_falling_wedge I then initiated a trade in $ALNY and added a Bear Collar later (which is now capped due to price falling below the Short Put strike):

ALNY_to_fadeI got several questions regarding this trade so I thought I would provide more detail on the Bear Collar. When a trader is short stock, one way to protect the trade is to add a Bear Collar. Here is how it works:

  • You are short stock
  • You short a Put below current price
  • You go long a Call above the current price
  • This Bear Collar can often be done for free or a credit

A few scenarios on how a Bear Collar can help:

  1. The stock suddenly rebounds and price goes above your short entry. The Long Call will gain in value and the Short Put will lose value so both pieces are winning in the Bear Collar. This helps to offset any loss you may be incurring on the Short Stock piece (and often exceeds it).
  2. The stock goes nowhere, just churns. In this scenario the Bear Collar will expire (if both strikes stay OTM) so no harm no foul.
  3. The stock continues to drift down and price goes below your Short Put strike. This scenario results in the short stock piece being “capped” – and if this continues, the short stock piece will get assigned. The Long Call goes poof. A capped gain, it happens, and a problem I don’t mind having.

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