Shares of ecommerce vehicle sales platform Carvana (CVNA) have lost 85 percent of their value in the past year. One trader is betting that the company will continue to slide lower.
That’s based on the October $40 puts. With 64 days until expiration, 20,786 contracts traded compared to a prior open interest of 458, for a 45-fold surge in volume on the option. The buyer of the puts paid $4.05 to make the bet.
Shares recently traded for around $55 per share, so they would need to drop about $15, or about 27 percent, for the option to move in-the-money. That would still leave shares nearly double off their recent low of just $20.
The company is in its early stages, and is unprofitable. However, the firm does have over $1.4 billion in cash on the books as it looks to move to profitability in the quarters ahead.
Action to take: Following the recent market rally, shares have moved significantly higher in a short period of time. A pullback appears likely. Interested investors can likely buy shares at a far lower price at some point in the months ahead.
For traders, the October $40 puts are well-positioned for a potential swing lower in shares. While the premium is a bit high, it can potentially earn mid-to-high double-digit returns for traders in the coming weeks.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.