The used car market is stagnant. Here's how to profit anyway — SkimNews
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- CarMax trades at roughly 17x fiscal-year expected earnings of $3.16/share, roughly in line with its 10-year historical forward multiple.
- Average used auto loan APRs sit at 15.9% with 68-month average loan terms per St. Louis Federal Reserve data, compounding high new and used vehicle prices and squeezing middle-market consumers out of the market.
- Dealership operational metrics have deteriorated: the cash conversion cycle has lengthened, inventory turnover has slowed, and average days on the lot have crept higher.
- The proposed November hedged short strangle sells the November $50 put at $1.50 and the November $60 call at $1.00, while buying the November $67.50 call for $0.20 to cap upside tail risk.
- The three-legged structure collects a net credit of roughly $2.30 per share ($230 per spread), about 4.3% of the current share price, equating to more than 37% annualized over the 42-day holding period.
- Downside breakeven lands at $47.70 (12% below current price) and upside breakeven at $62.30 (16.5% above); maximum upside risk is capped at $5.20 per share above $67.50.
Why it matters: With average used auto loan APRs at 15.9% and 68-month loan terms, middle-market buyers are priced out, leaving CarMax's dealership metrics softening and the stock range-bound without a near-term catalyst. Options traders can monetize that stagnation via a hedged short strangle yielding roughly 4.3% in six weeks (37%+ annualized), bracketed by strict breakevens at $47.70 and $62.30.
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