I love to short stocks whose margins are under pressure.  This is a news catalyst that can bring new selling and shorting.

Margins are how much a company makes on the product they sell.  If they make less per item then their core business will become weaker generally.  The only way to offset this is with increased volume.  But absent a note that their sales gross revenue is increasing, stocks usually find weakness.  We saw a possible example in BBY today, with the note below on our SMB Scanner.

I like to see the markets as trading patterns.  I should love this short trade right?  Not quite.  I am short.  I do like the short.  But I do not love it and it is important to point out why.

Usually I short stocks when the company has announced weaker margins.  Look carefully, as that is not the pattern here.  An analyst at Wedbush is warning that margin compression is likely in BBY.  This is the opinion of one analyst and not yet fact.  This is NOT the same thing as margins are compressed.

I found a nice spot to short BBY against VWAP (37.80ish).  I will lean short until it trades above 38 or I see the end of my short.  But I will not be as big.  This is not an A+ trade for me.  And this is all because the news catalyst is not quite the same.

Trade with distinction!

$Short $BBY

Mike Bellafiore is the Co-Founder of SMB Capital and SMBU, which provides trading education in stocks, and options. Bella is the author of One Good Trade and The PlayBook. He welcomes your trading questions at [email protected].