Carvana Options Volume Surge as First Quarter Results Blew Past Estimates
$Carvana(CVNA.US$'s options volume surged after the company's first quarter financial results blew past estimates.
Total options volume for Carvana climbed to 207,530 contracts, the highest since March 8. The climb from 177,770 on Wednesday landed the stock in the seventh slot for the highest options volume as of 11:41 a.m. in New York.
Shares soared 35% to $117.29 after the e-commerce platform for buying and selling used cars on Wednesday surprised the market with earnings of 23 cents a share for the first quarter. Analysts were expecting a loss of 67 cents a share, Barron's reported. Revenue grew 17% to $3.06 billion as retail units sold expanded 16% to 91,878. FactSet estimates showed analysts were looking for revenue of $2.67 billion, according to Barron's.
Call options that give the holder the right to buy Carvana stock at $130 by tomorrow saw volume soar more than ten-fold to over 23,000 from 2,284 yesterday. The out-of-the-money calls' volume compared with its open interest of 13,320. The price of the contract rocketed to as high as $3.49 from 24 cents yesterday. It trimmed the gains to trade at 35 cents at 11:50 a.m. in New York Thursday.
That strike price matches JPMorgan analyst Rajat Gupta's Dec. 31 price target on the stock. The analyst raised its recommendation on Carvana to overweight from hold as he boosted the price target to $130 from $70 after the earnings results.
"We expect CVNA to continue gaining rapid share while sustain margins well above peers, which could lead to positive earnings revisions in the medium term," Gupta said in a note to clients.
Whether Carvana's shares sustain the rally tomorrow and climb above that $130 before the call options is another matter.
Right now, 11 of the 15 technical indicators tracked by moomoo signal the stock is overbought and could reverse course. The remaining four indicators are neutral.
While Needham analysts Chris Pierce and Mackenzie Holleran acknowledged that Carvana has reclaimed its spot as the leader in used car retail, they said the company's valuation and debt burden "will continue to be the bears' talking points," Barrons reported.
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Former editor at Bloomberg, then Lazard Asset Management. Posts aren’t investment advice. Views are just mine.
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