Traders Expect Big Move in Carvana After Earnings
- Traders anticipate significant market movement following Carvana's earnings report.
- Mike Khouw suggests an options trade strategy based on the expected volatility.
- The outcome could significantly impact Carvana's stock performance and investor sentiment.
Carvana, an online platform for buying and selling used cars, has seen its business model come under scrutiny as it prepares to report earnings this Wednesday. The company aims to simplify the car buying process by allowing customers to trade in vehicles for instant offers and providing home delivery. With a seven-day money-back guarantee and a short-term warranty, Carvana has positioned itself as a consumer-friendly alternative to traditional dealerships. However, the company has faced significant challenges, including a staggering 99% decline in stock value, driven by rising interest rates and falling used car prices. Investors are increasingly concerned about Carvana's heavy debt load, leading to speculation about a potential bankruptcy filing. The current market conditions, including the highest new car inventories since December 2019, have further complicated the landscape, with new car margins decreasing, which could negatively impact the used car market. Despite these challenges, some analysts point to the high short interest in Carvana's stock—over 17% of the float—as a potential catalyst for an upside spike, even when fundamentals appear weak. The average price of new cars has surged to over $47,000 in 2024, raising questions about sustainability and the potential for an undersupplied used car inventory. As Carvana approaches its earnings report, the market remains divided on its future, with both bullish and bearish sentiments emerging amid a backdrop of economic uncertainty.