Carmax’s 2 Top 10 Unusually Active Options Sets Up for a Long Strangle: Should You Make the Bet?

Company Overview - Carmax is the largest used-car retailer in the U.S. and also conducts wholesale vehicle auctions, making it one of the largest in the country [7] - The company reported its Q2 2026 results, with shares declining by 20% following the announcement [7] Financial Performance - Carmax missed both top and bottom-line analyst estimates for the quarter, with revenues of $6.6 billion, which is 6% lower than the previous year and $410 million below Wall Street consensus [8] - The earnings per share were 99 cents, falling short by six cents of analyst expectations [8] - The company experienced a decline in sales each month during the quarter, indicating a weakening trend [9] Market Context - Despite the S&P 500's increase of nearly 13% in 2025, most used-car buyers are financially constrained [10] - U.S. household wealth reached $176.3 trillion at the end of June, but the growth in wealth is likely concentrated among the top 10% of Americans, who may not be the primary customers for used cars [11] Stock Performance - Following the recent decline, Carmax's market value has decreased by 44% in 2025, now standing at $6.84 billion, a level not seen since 2016 [12] - Technical analysis suggests a potential for further decline, with a strong sell rating indicating a 100% certainty of continued price decrease [13] Analyst Ratings - Among 19 analysts covering Carmax, 11 rate it a Buy with a target price of $77.94, which is 71% higher than its current share price [13] - Analysts are generally slow to revise target prices downward, which may not reflect the current market conditions accurately [13] Economic Indicators - The U.S. GDP rose by 3.8% on an annualized basis in the second quarter, but this growth was partly due to a decline in imports from tariffs [14] - Household debt reached $185 billion in the second quarter, with a delinquency rate of 4.4%, indicating potential financial strain on consumers [15] Options Strategy - A long strangle strategy involving a $47.50 call and a $40 put was set up, requiring Carmax's share price to exceed $49.55 or drop below $37.95 to be profitable [16] - The expected price movement is 7.38% in either direction, with a profit probability of only 27.3% [17]