Put Spread on KMX on 12/12/2022

CarMax, Inc. (KMX) operates as a retailer of used vehicles in the United States. 

The company operates through two segments, CarMax Sales Operations and CarMax Auto Finance.

It offers customers a range of makes and models of used vehicles, including domestic, imported, and luxury vehicles, as well as hybrid and electric vehicles; and extended protection plans to customers at the time of sale, as well as sells vehicles that are approximately 10 years old and has more than 100,000 miles through wholesale auctions.

The company also provides reconditioning and vehicle repair services; and financing alternatives for retail customers across a range of credit spectrum through its CarMax Auto Finance and arrangements with various financial institutions. As of February 28, 2022, it operated approximately 230 used car stores.

Shares have formed a bearish "head and shoulder" as used car prices have eased in favor of new cars. This has caused used car dealers stocks to come under presuure. Example of used car stocks that have been crushed include: CVNA, VRM, CARG, and TRUE. We expect CarMax shares to move lower as well. 

On September 18th, KMX reported 2nd Quarter August 2022 earnings of $0.79 per share on revenue of $8.1 billion. The consensus earnings estimate was $1.40 per share on revenue of $8.6 billion. Revenue grew 2.0% on a year-over-year basis (less than inflation).

We will be trading January 20th Put options.

Last Trade: $65.70

Trading Range: $54.85 - $150.32

Trade Buy 1 January $65.00 Put at $4.50 Sell 1 January $55.00 Put at $1.50 For a net debit of $3.00 Profit/Loss Analysis Breakeven at $62.00 Maximum profit is $700.00 at strike of $55.00 Maximum loss is ($300.00) at strike of $65.00 Closing Summary Sold 1 January $65.00 Put at $1.00 Bought 1 January $55.00 Put at $0.00

Position closed on 1/20/2023 at price of $1.00 with a -66.67% loss in 39 days.

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