🚗 481% Gain and Counting—Why CVNA’s Options Are Still Undervalued

Carvana Co. (CVNA) is trending in social media. Mentions are up 209% in the last 24 hours as investor brace for an earnings report. The earnings announcement is scheduled for the 30th of this month. You can see in the time series chart below that the 1-month implied volatility (the lower green line) is rising to anticipate the earnings report. The 3-month implied volatility (the lower blue line) is near the 1-year low. The ODDS Probability Cones show the market’s expected range in the future (the blue cone) and the range we would expect if the stock continues to move the way it has in the past (the yellow cone). You can see, if the stock moves the way is has in the past, moves are likely to be bigger than those that the current options prices expect.

This Volatility Term Structure chart for CVNA shows us the implied volatility for the at-the-money
options for each expiration. This chart shows that options expiring January 17th have the lowest
implied volatility expectations after the scheduled earnings report due at the end of this month. In
fact, investors may be underestimating the impact that the upcoming earnings report could have on
CVNA’s share prices going all the way out to January.

This MDM graph compares the modeled expected distribution for future stock prices (the orange line)
with the actual distribution of CVNA’s share prices over the past year (the blue histogram). You can see
that the actual stock movement shows that CVNA tends to make big moves more frequently than
January 17th options prices expect. There are many potential catalysts that could cause the move we
are looking for with an option buying strategy. The upcoming earnings report is just one potential
catalyst. This stock is also sensitive to broad economic news.

This Volatility Cone chart for CVNA compares implied volatility expectations for each term to the
historical volatility for that same term. The blue line shows the average historical volatility; the purple
lines show each HV measure’s highest high and the lowest low over the past year. You can see that the
three-month term (which is the term we are interested in) is near the extreme low historical volatility.
This confirms that options for the January 17th expiration are relatively inexpensive compared to the
way the stock has actually moved in the past.

CVNA is trending in social media circles this morning. This stock is a mover! Share prices have gone
from $41 on January 25th of this year to $197.34 at yesterday’s close. That’s a gain of 481%. It looks
like investors selling options that expire on January 17th are underestimating this stock’s potential to
make a big move. There are many potential catalysts for a big move between now and January 17th
including an earnings report at the end of this month. This is an option buying opportunity.
To get the specific details and prices on today’s trade ideas, be sure to read today’s ODDS Online Daily
Option Trade Idea.