Trade Alert: Top Names + Buying The Dip

The short case on this one just got invalidated.

Taking Advantage Of The Dip

Last week, this stock dropped after a research shop put out a bearish thesis on it, the gist of which was that some accounting irregularities in the past might jeopardize its financing. On Monday, the company got its financing contract renewed, effectively invalidating that short thesis.

It was also one of our top ten names on Monday. Our bet here is that it partially recovers its recent losses after it posts earnings next month. If we’re right, we could make about 200%; if we’re wrong, we could lose up to 100%.

Details below.

Today’s Top Names Trade

The stock is Carvana (CVNA 0.00%↑), which just renewed its financing deal with Ally Financial (ALLY 0.00%↑) yesterday, and our trade is a vertical spread expiring on February 21st, buying the $220 strike calls, and selling the $230 strike calls, for a net debit of $3.32. The max gain on 2 contracts is $1,336, the max loss is $664, and the break even is with CVNA at $223.32. This trade filled at $3.32.

Exiting This Trade

I’m going to set a GTC order to exit this call spread at about $9.50 or $9.75, and lower that price, if necessary, as we approach expiration.