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I stumbled onto something interesting on X (formerly Twitter) last week — and it’s got me positioned short on Carvana (CVNA)…
I’ve been watching this company for a while, and with everything swirling around it, I was surprised regulators would allow it to be added to the S&P 500, but here we are.
On Monday’s Profit Panel, I spoke with Geof Smith about this exact trade setup and why the risk-reward made sense at the time.
Overnight, CVNA pushed as high as $337 before pulling back to the current $330 area, which is exactly the kind of movement this structure is built to handle.
Carvana has been at the center of fraud allegations and accounting disputes for years. What pulled me in this time was how quickly the fundamentals appear to be deteriorating.
Margins are shrinking on the car side. The company makes a lot of its money on the loan business, and if you think about some of the auto loan companies that collapsed in the past, it raises real questions about how sustainable that revenue stream really is.
A weakening consumer and rising credit stress aren’t doing it any favors. If loan performance slips — even a little — the whole model starts to wobble.
Based on what I’ve been seeing, there’s a chance it’s using some creative accounting to smooth over the rough spots.
How I Structured the Trade
I don’t love shorting stocks outright, especially ones that can whip around on news or aggressive retail behavior. So instead, I took a short put spread.
The setup is simple: I bought the March 20 expiration at the $340 put, and sold the $330 put. It’s a deep in-the-money bear put spread that functions almost like a synthetic short, but with defined risk.
The position cost around $5.50 to $5.60 per contract, and as long as CVNA stays weak — below roughly $329 to $330 at expiration — the return profile remains attractive.
With the stock now around $330 after that push to $337, this is where time decay starts to matter more than headlines.
Why Time Is the Edge
I’m not expecting this to pay off overnight. Spreads like this need time for theta to do its job, and that’s exactly why I chose this structure instead of shorting shares outright.
Every day CVNA fails to reclaim and hold higher levels, time decay works quietly in the background. The short $330 put helps offset premium, and as expiration approaches, the math becomes more favorable if the stock stays pinned near or below this zone.
The key here is patience. When the fundamental picture is weakening, the loan business looks fragile and the accounting noise refuses to go away, there’s no need to force a fast move.
Let the trade breathe. Let time decay do its work. And let the story play out.
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To better trading,
Alex Reid
WealthPin
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