Thomson Reuters
- Carvana shares surged 30% on Monday as the retailer extends its 2023 rally.
- The company holds the second-highest short interest at 59%, according to MarketWatch.
- Traders are placing bets that the firm's rally won't last on looming bankruptcy concerns.
Carvana surged 30% on Monday as the online used-car retailer extends its massive 2023 rally.
Shares have soared 108% in the past month, after plunging 94% last year from rising inflation and falling used-car prices. The stock closed at $10.08 on Monday.
Short sellers are placing bets that the firm's rally won't last as it faces a slew of financial problems, including looming bankruptcy concerns. Additionally, Carvana stock will likely be sensitive to the Federal Reserve's rate hike announcement later this week.
The Arizona-based company holds the second-highest short interest at 59%, per MarketWatch, meaning that more than half of floating shares are in the hands of short sellers betting the stock will fall.
Meanwhile, Carvana is resorting to a "poison pill" strategy to deter hostile takeover attempts before the company can fix its financial issues.
But the Carvana rally is reminiscent of the meme-stock craze in 2021, when GameStop spiked 134% in a concerted effort by retail traders on Reddit to raise the value of the video game retailer's stock.
That created a so-called short squeeze in which retail traders target a stock with high short interest. Their coordinated purchases push a stock up, forcing short sellers to close their positions by buying the stock they're betting against, adding further fuel to a rally.