Core CPI rose 0.4 percent in January to an adjusted 3.9% year over year. Two consecutive months of rising rates shifts the narrative from the Central Bank not lowering interest rates in March, possibly not even in May, and pushing any rate cuts to June. Other highlights of the CPI report:
Shelter (ie - rent) rose 0.6 percent in January
Used car prices fell 3.4%. The used car index has been falling consecutively for the last six months.
Food away from home rose 0.5% in Jan to an adjusted 5.1% year over year. The cost of eating out continues to create problems for customers who are spending more and tipping less.
After todays CPI report, I’m thinking of taking a position in Carvana. Here’s what I’m thinking:
Used car prices are falling
Earnings call is Feb 22
Bollinger Band +/- $8
Expected price move at earnings +/- 10%
Carvana has a good long-term proposition
Order: Buy to Open with expiration on August 16, strike of $40, and bid of $15
Based on seasonal car sales where Summer picks up, then the decline in car prices may help with sales. If CVNA drops at earnings to $40, then I'm still ITM. And I have time to offset the risk. I have at least two more earnings call to get a better result. Of course, time decay will not be on my side the closer to Aug. If I look at the simple moving average 150 days, then the avg price is $48 which makes me comfortable knowing that the stock price should not go to $30 unless there is a cataclysmic event.
If my order is accepted, then I would place a Sell to Close limit around $24 for 60% gain.
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I don't know if there is a probability I can state. Given past history of the volatility of CVNA, I know that if the order does execute then I've achieved asymmetry. Then barring any cataclysmic events, the Carvana gods should be on my side. 😇
The Call options would have to fall 25% from the current price for your limit to get filled.
What is the likelihood of that?
I don't know if there is a probability I can state. Given past history of the volatility of CVNA, I know that if the order does execute then I've achieved asymmetry. Then barring any cataclysmic events, the Carvana gods should be on my side. 😇