Time For CAR To Come Back Down To Earth

The Most Dangerous Kind Of Bubble

Avis Budget Group (CAR 0.00%↑) is no longer trading like a rental-car company. It is trading like a short squeeze that has eaten the stock.

By Tuesday, Reuters reported that 86.2% of Avis Budget’s free float was sold short, while two large holders—SRS Investment Management and Pentwater Capital Management together controlled more than 71% of the outstanding shares. Barron’s went further, arguing that once you include cash-settled swaps, their combined economic exposure may effectively exceed 100% of the stock. That is how you get a chart like this one: a stock that was around $100 a month ago suddenly behaving as if gravity has been repealed. 

That kind of move can go farther than anyone thinks. But it also tends to end the same way: badly.

Similar To Volkswagen, Similar To GameStop, But Not The Same

There are obvious parallels to past squeezes.

Like Volkswagen in 2008, this is a supply-demand crisis. In Volkswagen’s case, Porsche’s control over the float helped send the stock into the stratosphere as short sellers scrambled for shares. Reuters’ old description of that episode—“frantic short-covering” driving a stock vertically—fits part of what is happening in CAR now too.

Like GameStop in 2021, it has also become a spectacle. CAR’s surge has drawn in momentum traders and has started to resemble the meme-stock behavior of 2021. 

But CAR is not exactly either of those.

Unlike Volkswagen, there is no strategic acquirer openly cornering the company for industrial control. And unlike GameStop, this does not appear to be primarily a populist retail crusade against hedge funds. What makes CAR unusual is how mechanical the squeeze is: an enormous short position, a highly concentrated shareholder base, and very little genuine float left to trade. That is less a social movement than a market plumbing failure.

Why We Think It Bursts Within A Month Or So

The reason we think this bubble is likely to burst relatively soon is simple: the move is technical, not fundamental, and technical squeezes usually have shorter shelf lives than the stories built around them.

Barclays and Deutsche Bank both downgraded the stock even as it was exploding higher, citing overvaluation concerns after Avis reported an $856 million Q4 net loss. Barron’s said the stock was trading around 150 times projected 2026 earnings, and also noted that Avis has already filed an at-the-market program allowing it to sell up to 5 million shares. Once more supply becomes available—or once shorts have covered enough to take the panic out of the trade—the entire logic of the squeeze weakens. 

That is the main difference between a short squeeze and a true re-rating. A re-rating can persist because the business improves. A squeeze persists only so long as the market structure remains broken.

CAR may go higher first. In bubbles like this, that is always possible. But when the buyers are increasingly forced rather than convinced, time usually works against the stock, not for it.

The Setup We Want

That does not mean fading it is easy.

We looked at a range of bearish options structures. The obvious ones were not attractive. Higher-strike put spreads offered worse risk-reward. Lower-strike put spreads offered much better risk-reward, but required us to be more precise about timing and about how much of the move eventually gets retraced.

After running the numbers on several different approaches, we think we have found a cost-effective way to bet on this bubble bursting on roughly the timetable we expect.

What We’re Doing About It

We think we’ve found the right structure for this setup.

If you want a heads up when we place that trade later today, you can sign up for our trading Substack/occasional email list below.