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Carvana stock up 200% year-to-date amid short squeeze

Yahoo Finance’s Ines Ferre joins the Live show to discuss Carvana stock.

Video transcript

[AUDIO LOGO]

BRAD SMITH: Guys, Carvana, that's also in focus. Shares are in focus after an epic week, amid a major short squeeze. Yahoo Finance's Ines Ferré, yeah, you know it, she's on the case. She's been tracking this one. Shares right now are up by about 2 and 1/2%. Ines, help us break this one down.

INES FERRÉ: Yeah, this has been a really interesting stock to watch over the last week. But first, let's back up for a second to talk about what short selling is and what a short squeeze is. So short selling is when investors for a fee will sell borrowed shares, with the help of a broker, and they agree to replace those shares by later date. That means that they're covering their positions. Now, short sellers are betting that those shares will go down in price and that spread to the downside would be their profit.

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A short squeeze is when a stock rises and shorts cover their positions, buying back shares at those higher prices. Literally, getting squeezed out of their positions. And that's what creates that upward movement in the stock price.

Now, we saw this happening with Carvana where Carvana's price moves-- and this is a quote from our friends at S3 Partners. "Carvana's price move has made it one of the most squeezable stocks in the US with the short interest of 67% of the float." The float is the number of shares that are available for trading.

And short interest really gives you a sense of how investors feel about a stock. That they believe that the stock will go down in price. Now, Carvana's an all-time high remember was at $370 back in August of 2021. Last year, the stock was down 98%.

This year, year-to-date, the stock is up about 200% because you are watching short squeeze on that-- on that stock. And you see it on the screen right now. Other notable names that have also had short squeezes in the past, of course, AMC, GME, you know the drill there.

JULIE HYMAN: So what are the other squeezable stocks that maybe could be-- I mean, Carvana, you know, is not alone. We have seen this happen with some other companies, some of them you just mentioned.

INES FERRÉ: Right, exactly. And usually these are companies that are facing challenges. And so investors are betting that share prices will go down. Lucid is another one. Lucid's short interest is 25% of the float. And we saw that stock really squeezed last Friday on that headline that was speculation of a buyout.

So these headlines are the catalysts. And then they will create these massive short squeezes. And, in fact, I had an analyst from CFRA Research saying, this is why it's so dangerous right now to be in electric vehicle stocks because they got decimated last year. Investors are betting that this share price are gonna go down. And this creates a short squeeze when you see a headline and the share prices go up. Peloton's another squeezable stock. Opendoor, Coinbase, Wayfair, some of these companies, watch out.

BRIAN SOZZI: Squeezable stock, I like that one. Ines Ferré, thanks so much. Appreciate it.