‘The Jig Is Up’: 70% Crash Marks Quick End to Avis Short Squeeze

In just two days, with no clear cause, the car-rental company’s stock cratered so deeply that it wiped out all but a sliver of its 600% surge over the previous month.

“You typically don’t see stocks like these swing this way,” said Steve Sosnick, chief strategist at Interactive Brokers. “It was such a strong move, in such a short time — that, too, in a household name like Avis.”

The sharp rise was, by all accounts, a classic short squeeze, in which the hordes of investors who’d sold borrowed Avis shares, betting they’d drop, suddenly started racing to close out those positions by buying them back. As others held onto their stock, making the supply relatively scarce, the price soared.

What caused the sudden and violent reversal — sending the stock plunging nearly 70% on Wednesday and Thursday alone — is much less clear. But to many traders and investors, including those who bet against Avis and made money when it crashed, it always seemed inevitable that it would end this way.

The stock price had gotten clearly untethered from the company’s fundamentals. And unlike the similar jumps in meme-stocks like GameStop Corp. or AMC Entertainment Holdings Inc., there was no small army of day traders intent on keeping it going.

Then late on Wednesday, after the first leg down, Avis announced that it would report its first-quarter earnings on April 29, ahead of an expected early-to-mid May date. That ignited speculation that Avis was planning to seize on the jump to raise money by selling stock, which turbocharged the selloff.

Avis in late March filed for a so-called “at-the-market” offering, which allows for open-market sales at prevailing prices, for up to 5 million shares, though it has not disclosed selling any yet. Avis didn’t respond to requests for comment.

“Once they say they’re announcing earnings, you know they’re going to try and issue stock,” said Vikram Rai, a portfolio manager and macro trader at First New York who started shorting Avis’s stock last week. “Now everybody knows the jig is up. They’re going to come and dilute the existing shareholders, and if there’s more volume in the market, the short squeeze is over.”

To many on Wall Street, the Avis boom-and-bust brought flashbacks of the meme phenomenon of 2021, when day traders made a game of burning short sellers and vexing Wall Street pros by banding together to drive beaten-up stocks into the stratosphere. And some retail investors did participate by buying into the latter part of the rally and selling amid the vertical drop over the past two days. But they were not in the driver’s seat.

What is happening with Avis is the result of a more classic dynamic among professional speculators. The stock had been heavily shorted. And a whiff of good news — a big shareholder upping its stake, a rise in used car prices — drove speculators to close out their bets in case the stock turned the corner.

The amount of shares available in the market, moreover, is relatively thin, given that two firms, SRS Investment Management and Pentwater Capital Management LP, together own over 70% of them. In a filing late on Thursday, Pentwater disclosed it acquired some Avis shares by exercising some call options on April 21, right before the rout began.

SRS declined to comment, while Pentwater did not reply to multiple requests for comment.

“It was heavily shorted, but some other non-retail flow likely triggered the initial short squeeze,” said Vanda Research global macro strategist Viraj Patel. The fact that “retail aren’t buying here may be one explanation for why this hasn’t been another GameStop moment of sustained short squeeze.”

Avis briefly captured the interest of individual investors in 2021, when low-cost online brokers and near-zero interest rates revived day trading and lifted speculative assets of all types. That crowd pumped up Avis’s stock in November 2021, when the company hopped onto the bandwagon of electric vehicles, a market obsession of the time.

But they played only a bit part this time. Retail investors were only net buyers on three days this month, Vanda data through Thursday shows. The options market, which played a major role in creating the meme stocks, was also muted this time around: In fact, more puts than calls traded on Avis on the way up, if anything a sign that some investors may have been fading the rally.

The sharp moves continued Friday, when it closed down another 11% after swinging wildly between gains and losses all session. Yet Wall Street analysts have grown more bearish on the company — with those at JPMorgan Chase & Co. and Barclays Plc recently advising clients to sell the stock — and short sellers say it may have room to fall further.

Bruce Cox, president and portfolio manager at Harrington Alpha Fund, who was among those who shorted Avis, said he thinks that things are going to get “a lot worse” for the stock.

First New York’s Rai said the chaos could be far from over.

“It’s going to swing around a bit because the technicals are so skewed,” he said. “This is the dream set up for a trader.”

--With assistance from David Marino, Bailey Lipschultz, Bernard Goyder and Hema Parmar.