Avis short squeeze. US market is Crazy

General
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Something feels off about the US markets and not many of us even know this happened. Long post ahead.

There’s a rental car company in the US called Avis Budget Group. Ticker is $CAR. This company lost nearly $1 billion last year, has $25.8 billion in debt. They are fundamentally terrible but there stock went up 500% last month. I mean :dagger:

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Avis has around 35 million total shares. Two hedge funds own 71.5% of it. SRS Investment Management holds 49% and their founder sits on Avis’s board. Pentwater Capital quietly bought up another 22% when the stock was around $100. After these two funds are done, only 10 million shares are left for the entire market to buy and sell.

Now a lot of traders looked at Avis and decided this thing is going to zero. So they shorted it.

In US, shorting is your broker lends you shares from someone else’s account, usually big institutions who are holding long term and don’t care. You sell them, wait for the price to drop, buy back cheaper, return the shares, pocket the difference.

Given how bad Avis looked, not a stupid trade at all. Let me tell you how bad it is. 90% of those 10 million shares had already been shorted. Everyone saw it and made the same bet.

Then Pentwater had been sitting on massive ITM calls and exercised them all at once near expiry. Sellers had to deliver actual shares, sourcing them from the market, and overnight, millions of shares disappeared, leaving the float almost dry.

Now here is the real mess. Short sellers owe shares back to whoever they borrowed from but the shares available in the market are fewer than what they collectively owe. There is no way out for everyone.

So they all start panicking. Everyone buying, nothing available. One guy buys at any price, pushes it higher, next guy panics more, buys higher. Goes on and on. Stock went from $100 to $647 in a month.

Short sellers are sitting on $1.1 billion in losses. Some are still stuck today because the shares they need do not exist.

Meanwhile Avis that was drowning raised $3 billion by filing to sell 5 million new shares at whatever the market price is.

Stock at $100 price it is $500 million. At $600 that’s $3 billion. It’s same number of shares but six times more, used to pay down debt.

Let me tell you, all this was legal. Pentwater buying options, exercising them, SRS holding a big stake, Avis planning a share sale. Each one of these is completely legal.

God bless US markets. :pray:

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another gamestop

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It’s kind a opposite of GameStop actually.

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How does efficient and inefficient market theories play here? Here’s a much simpler theory: Money in stocks go brrrr. Money out stocks blows. Whoever has money decides the direction, regardless of world war 3 or nuclear destruction of countries.

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US markets aren’t efficient or inefficient, price is whatever the biggest wallet feels like that day.

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If anyone wanted a follow up chart of $CAR,

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I agree. circuit limits needs to be removed.

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Sarcasm?

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In general, not specific to Avis.

Removing circuits or at least rethinking how they work. I feel, the current system creates an illusion of safety. A stock hitting upper circuits 10 days in a row with no sellers isn’t price discovery. When it reverses, retail is stuck watching lower circuits with no exits.

I maybe thinkin brutal, if circuits were gone, the real price would be found in a day or two. Right now you wait across weeks and trap more people on the way down.

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The tweet is sarcasm BTW, but what people dont understand in indian markets microcap, smallcap and SME stocks are even more manipulated with the circuit limits.

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I wonder who bought the new shares issued by Avis at the inflated price!