Now looks like a good time to buy CVNA calls
Subscribers to Schaeffer's Weekend Trader options recommendation service received this CVNA commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.
Used car e-tailer Carvana Co (NYSE:CVNA) surged after a better-than-expected second-quarter report, with news of its debt restructuring deal generating additional tailwinds. Nevertheless, the security has received at least three downgrades since then, which have added selling pressure and returned the equity to its pre-bull gap region. The shares are still above their 20-day moving average as well.
Though shorts have been in covering mode since January, when short interest hit an all-time high, there is still ample pessimism left to unwind. Specifically, short interest represents 41.9% of the stock’s available float. Analysts are bearish as well, despite CVNA’s roughly 828% year-to-date gain, with 20 of the 21 analysts in coverage carrying a “hold” or worse rating. This suggests the equity is ripe for a round of upgrades.
Furthermore, now looks like a good time to weigh in on the security's next move with options. CVNA’s Schaeffer’s Volatility Index (SVI) ranks in the low 8th percentile of its annual range, meaning options traders are pricing in low volatility expectations at the moment. Carvana stock has tended to exceed these volatility expectations as well, per its Schaeffer’s Volatility Scorecard (SVS), which ranks at a high 99 out of 100 .
Our recommended call option has a leverage ratio of 2.9, and will double on a 38.7% pop in the underlying shares.