I posted this on Friday predicting SP inclusion, but the mods deleted it. Anyway…
I’ve been studying/trading Carvana for many years. The key to survival has been understanding that the CVNA CEO and his father (who owns nearly 40% of the diluted share count an sits at #42 in the Forbes list) are evil, but extremely clever.
They have manipulated both the share price as well as the company’s financials by controlling the float and establishing 4 quarters of profitability via related party transactions. Their end goal was always SP inclusion, which now creates continuous liquidity to turn back on the 10b5-1 trading plan and unload on passive buyers.
Due to the conditions that enabled the above, this ain’t a gap up, it’s a supply crisis.
Institutions currently own 90-95% of the tradeable float. The actual loose float available is only 10-15 million shares.
Tomorrow morning three big buyers are hitting a wall of zero supply:
- Short interest is still ~12M shares. Many are facing a margin call at the open and must buy to cover.
- MM were selling calls all week on the rumor. With the AH gap to $440, thousands of Dec 19 contracts just went Deep ITM. MM need to buy 2.5M - 3M shares to stay delta neutral.
- The SP500 index funds need to buy roughly 16 million shares (approx. $7B) by Dec 19. They can't buy yet, so arb desks will be buying Monday to warehousefor them.
The level of greed is on mars right now because every trading desk is aware of the mechanics and liquidity crunch. Institutions are holding because they know indexes will pay whatever it takes on Dec 18. Buying demand far outweighs supply.
It’s hard to say how exactly this plays out, but this is stock is crazy and this event is extremely unique. If I had to guess, CVNA gaps up 15%+ and has the potential to rip higher. I’m expecting a high in the 470-500 range. Absurd, I know, but this is the grand finale of one of the greatest marker manipulations in history. It’ll be fun to watch tomorrow.
