Why CarMax Stock's Post-Earnings Pullback Could Be Short-Lived

Options look like an ideal way to speculate on the stock's next move

Deputy Editor
Oct 4, 2021 at 1:18 PM
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The shares of CarMax, Inc (NYSYE:KMX) suffered a dramatic bear gap late last month, following the company's second-quarter earnings miss. The stock has been subject to several analyst downgrades since the abysmal quarterly report, which has put even more weight on KMX, last seen down 2.6% at $123.90. There could be a silver lining to this recent pullback, however, as the security has just come back within one standard deviation of a historically bullish trendline, per data from Schaeffer's Senior Quantitative Analyst Rocky White. 

White's data shows KMX coming back within striking distance of its 200-day moving average after a lengthy stretch above the trendline four other times in the past three years. Both short- and long-term returns look good, seeing as one week and one month after each of these signals, KMX was higher, averaging returns of 14.8% and 15.5%, respectively. A similar move from its current perch would put the stock just above the $434 level. This region is home to the stock's pre-earnings session lows on Sept. 29, which also happens to be the same session KMX hit a record high of $147.73.

kmx chart oct 4

An unwinding of pessimism in the options pit could put additional wind at KMX's back. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock sports a 10-day put/call volume ratio of 1.18, which stands higher than 74% of readings from the last year, implying options traders are picking up puts at a quicker-than-usual pace. 

The stock's Schaeffer's put/call open interest ratio (SOIR) of 1.05 echoes this, and stands in the 61st percentile of its annual range. This means short-term options traders are much more put-biased than usual. 

Now looks like an excellent time to speculate on CarMax stock's next move with options. The equity's Schaeffer's Volatility Index (SVI) of 30% stands below all but 21% of annual readings, and its Schaeffer's Volatility Scorecard (SVS) sits at 79 out of a possible 100. This means options traders have been pricing in relatively low volatility expectations for KMX, and that the stock has tended to exceed these expectations. Plus, per additional data form White's study, the expected 21-day return on a CarmMax call is an impressive 239%. 

 

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