NOTE: The options trade recommended in this blog is risky. You could lose all of your money. Only invest a small amount of money if you decided to take the trade.
The used car market was on fire during the pandemic and Carmax (KMX) – the leading used car dealership – was a huge beneficiary. Revenue increased 68% in their fiscal year ending February 28, 2022 and EPS was +54% to $6.97. However as the supply chain for new cars has loosened and inflation priced many consumers out of the car market KMX has taken a beating. Its stock is down more than 60% since its all time high in November 2021.
Analysts are expecting another brutal quarter when they report earnings Thursday morning. According to Zacks, analysts expect revenue to decline 14% to $7.3 billion and EPS 63% to 61 cents. When everyone is this bearish and expectations are so low even a mediocre quarter can lead to a huge relief rally in a beaten down stock. Therefore I’m looking to speculate on such an outcome using a small amount of money by buying KMX $68 Dec23 Calls which I just bought for $1.60.