Avis Stock Crashes 48% as CAR Short Squeeze Reversal Wipes Out Rally

A massive downfall in CAR stock on April 23 came after weeks of steady gains. Avis stock had been climbing on strong momentum. But the trend reversed in no time. This caught many traders on the wrong side. The scale of the drop shows how stretched the trade had become in a short period of time.

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Avis Stock Falls After 600% Surge Fueled by Short Covering

Shares of Avis Budget Group fell about 48% in a single session. It was pulling back from levels above $700 reached earlier in the week. The stock is still up significantly from March, when it was trading below $100. But a large part of the recent rally has now been washed off.

The earlier move higher was driven by a short squeeze. A high level of short interest meant that as the stock started rising, short sellers had to buy back shares to close positions. This, in turn, added to demand and pushed prices further up. Bruce Cox, president and portfolio manager at Harrington Alpha Fund, noted,

“It was 100% driven by the float and by momentum, algorithms, and the short squeeze. It’s like a domino. There was no reason, fundamentally, for the rise in the stock.”

Amidst the rally, trading activity saw a notable rise. Options volume crossed 200,000 contracts in one session. In addition, implied volatility surged to around 235%, according to the latest data.

At the same time, the number of shares available for trading remained limited. Avis has roughly 36 million shares outstanding. It should be noted that a large portion is held by major investors. This made price moves more sensitive to changes in demand.

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Selling Pressure Builds

The drop started as buying slowed near the highs. With fewer buyers, the stock started to fall. Meanwhile, sellers began to dominate, and prices moved lower through the session.

Some brokerages had already adjusted margin requirements earlier in April. This may have added to pressure as traders reduced positions. The move has drawn comparisons to past short squeeze trades. This includes GameStop in 2021. Michael O’Rourke, the chief market strategist at JonesTrading, added,

“When a short squeeze like Avis this month or GameStop in 2021 occurs, it attracts retail attention and creates a herd mentality.”

CAR stock remains volatile. The recent move shows how quickly momentum-driven trades can change direction. This is especially true when driven by positioning instead of business performance.

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