Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.

Have a stock YOU want us to review? Email my team here. – Mark

Hey Traders,

Yes, yes, I am talking about Carvana Co (Ticker: CVNA), not the beloved 90’s grunge band. 

CVNA was a beloved $300 stock. I even remember a WSJ article touting the Father and Son combo that was responsible for the explosive growth.

Not so much now. 

CVNA as a stock is about as volatile as it has ever been but on a much lower level of stock price. That makes a big difference. A 100 volatility stock moves at 6% per day, but for CVNA it’s only 48 cents. Not that big a deal.

CVNA 2 year chart with 90 day IV in green

However, there is something to be discussed that is a big deal.

Take a look below at the EdgeHunter Hard to Borrow sheet for CVNA:

 

Option prices imply an $8.36 stock price, even though the underlying stock is trading closer to $9. 

That means there is substantial short interest, as traders bet that CVNA will go bankrupt after the year for the ages in 2021. 

The borrow, which is the cost to short, is around 17% a year. And given the level meme stocks can get to, that’s relatively reasonable for a hard to borrow stock.

Upside calls are not unreasonable given the potential squeeze, but it’s still risky. 90 day implied vol is pricing 10% per day for an average move. 89 cents per day so expect the volatility to stay here.

If CVNA can survive, the calls look cheap at the 15 strike and above.

Questions about that? Leave a comment below!

To Your Trading Success,

AG