Carvana: The Gamma Squeeze is Real, Time to Bankrupt Kerrisdale

Heavily shorted Carvana Co. (CVNA) is in the middle of a squeeze. One that looks eerily similar to the beginnings of the one we saw on GME that eventually made it run to $400 and took down Melvin Capital. Once again certain market players or commentators who focus on fundamentals and who misunderstand or downplay the short squeeze thesis will only add fuel to the fire as they short the stock. Will Carvana be able to refinance its debts next year? Will it become profitable by then? Who knows, and who cares. 2024 isn't the timeline here. The timeline starts as early as June 16, 2023. Triple witching day on options.

This time Kerrisdale Capital is the target. The firm is in a desperate spot because the last short call it made was C3.ai, Inc. (AI). AI is in the middle of its own short squeeze and has nearly doubled into $40's since Kerrisdale tried taking it down:

The AI report is still featured alongside on the CVNA one on Kerrisdale's website, so we can assume this position is still active. With an already weakened balance sheet from substantial losses on AI, Kerrisdale can ill-afford another big loss. Melvin Capital was taken down by one bad short position on GME. Kerrisdale has two. The charts look like twins when comparing YTD performance as AI roars up to $47 at the time of this writing:

CVNA broke out in a mini-squeeze last week when it spiked to over $27 from $15 after announcing improved margins for Q2. That certainly sparked some short covering, but with 48 million shorts or about 64% short interest, this is far from done. The stock has high potential to gamma squeeze given the insane amount of open call options positions there is right now. 

A total of 74,901 open interest on call options exist that are in the money at strike prices of $24.00 or below expiring at the end of this week. That represents 7.5 million shares potentially locked up in gamma hedging strategies and must be presented by call option writers to settle the positions. There is an additional 9,844 in open interest on call options up to a $25 strike price looking to go in-the-money today and another 22,718 in open interest on call options ranging from $25.50 to $30. The gamma squeeze opportunity is highlighted here:

48 million shares are short. But an additional 7.5 million need to be presented to close out in-the-money call option positions with an additional 3.3 million that might need to be presented should the stock reach $30 by tomorrow. That's 78% of the float. This doesn't account for the tens of thousands of call options that are currently in-the-money at later expiration dates that would have shares locked up in gamma hedging strategies. For instance, there are over 11,000 open call option positions at $24 or lower strikes for the June 23 expiry. That would be another 1 million shares locked up in in-the-money call options. The potential of a gamma squeeze on Carvana is real on the backs of Kerrisdale and other shorts who stupidly shorted CVNA and AI at the same time.