CAR, pairs-trading and a short squeeze

Hi all,

Avis (CAR) seems to be doing well today and I am happy to have benefited with a small holding of CAR. It is up about 117% today as I write this.

But what happened? Of course, they had a pretty good earnings report. But did a short squeeze play a part and how (if it did)?

My understanding is that many were pairs-trading Avis and Hertz. Not as correlated (or cointegrated) as they had hoped, I guess.

I played with some pairs-trading for a couple of weeks and I am far from an expert. But there seemed to be way more volatility than one would expect from companies that were supposed to be so similar: like Avis and Hertz. Generally, pairs-trading seemed difficult with questionable reward in my hands.

Assuming my one source is at all correct about pairs-trading having anything to do with this.



I have short puts in CAR as an earnings play, and I watched this like a hawk today. I know of a few people that were short strangles, and I feel for them. One short call contract with a 200 strike at the todays peak price would have been 35k in the hole. Furthermore, options margin went from regular, to cash-secured… if anyone played this too big, they would have been margined-called as well. FYI, options on Monday were pricing in a 20-point move. The explosion up hit 550, a 370 points jump, equivalent to 19 standard deviations. This is the true definition of outlier risk, and is off-the-chart scary. That said, nice if you are long!

While I had little to no risk, it was sobering watching it… I find some reflection is always required if you get a little close to the fire. I did some digging: CAR has 22% short interest, so the most likely cause is a short squeeze. There was little in the way of significant option buying (like the GME gamma squeeze), so it didn’t look like it was a Reddit-driven/meme move. It also wasn’t on any of the boards that I follow - I only monitor to make sure I am well clear. Later in the day, some talking heads postulated that a hedge fund or two got caught - and their short covering drove the price spike. That should come out in the next day or so.


Simon, Thank you–Jim

BBBY also had a gigantic short squeeze after earnings popping 80%. Maybe this is a new market norm that has moved beyond niche Reddit boards. Very scary stuff to be in any crowded short trade.


Cramer seems to agree that this is a new market norm and gives the example of CAR and BBBY as you did: Cramer expects more companies to reach meme-stock status until ‘hedge funds learn their lesson’