Why this matters: CarMax reported on September 29. Short sellers were already exiting at pace beforehand. Options traders were braced for trouble. Now the data shows what both camps got right, and what they got wrong.
The covering story is now conclusive. Short interest in CarMax has fallen 25.8% over the past month, sitting at 6.7% of the free float as of September 29. From a mid-August peak of roughly 13.4 million shares short, positions have unwound to just under 9.85 million.
The pace accelerated into the print. Weekly short interest fell 11% for the third consecutive week. Whatever the thesis had been, most short sellers were not willing to hold it through earnings.
Cost to borrow confirms the direction. It has dropped 55.5% over the past week to 0.27% annually, the lowest level in months. Availability stands at 7,042% of shares borrowed, meaning the lending pool is completely unconstrained. No squeeze pressure at any point in this unwind, shorts left because they chose to, not because they were forced out.
The options market was not sharing the shorts' apparent confidence. The put/call ratio reached 0.6447 on September 29, a reading 3.56 standard deviations above its 20-day average of 0.51. That is the highest PCR since late August on record data.
The two signals ran in opposite directions heading into the print: short sellers covering at speed, options traders buying protection at an elevated rate. That divergence is the defining feature of the pre-earnings positioning picture for CarMax.
The stock gained 4.7% on September 29. The defensive options positioning was not rewarded on the day.
Analysts moved targets higher ahead of the print but without a clear directional conviction. B of A Securities raised its target to $50 but kept an Underperform rating. Stephens raised to $74 with an Overweight. JP Morgan sits at $70 with a Neutral. The consensus mean target is $60.46, close to where the stock is trading at $59.23.
American Century Investment Management added 1.86 million shares as of August 31, the largest institutional position build among top holders. Dimensional Fund Advisors added 699,000 shares over the same period. Two Sigma added 485,000. The institutional flow into the stock over the summer aligns with the short covering, a broad reduction in bearish positioning.
The ORTEX short score has eased from 46.5 in mid-September to 44.0 as of September 28, reflecting the lighter short positioning as covering accelerated.
See the live data behind this article on ORTEX.
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