Yesterday’s options trading was interesting for several reasons. However, it didn’t seem to carry over to the unusual options activity.
For example, the options volume of 65.09 million was 24% higher than the 30-day average. Yet, of the 1,422 unusually active options–options with Vol/OI (volume-to-open-interest) ratios of 1.24 or higher, expiring in seven days or more–none had a Vol/OI ratio of 100 or higher.
Furthermore, while 1,189 stocks had options volume exceeding their 30-day average volume, the top 10 accounted for 44% of the total volume, and the top 100 accounted for 79% of the total volume.
Based on this information, you might guess that the top 10 stocks in terms of options volume would have the most unusually active options on the day.
That is not the case at all. Of the top 10, only two had unusually active options in the top 100: Intel (INTC), with nine, and Strategy (MSTR), with four. Only Intel had an unusually active option in the top 10.
That makes sense. Generally, stocks that make the top 10 unusually active options are there because investors are chasing a yet-to-be-determined outcome, often driven by events that have occurred or are about to take place, such as an earnings report or an acquisition announcement.
Of the top 100 unusually active options, only one stock had two or more, and that is Carmax (KMX). For today’s commentary, I’ll focus on the used-car seller’s two options and the long strangle they set up.
Have an excellent weekend.
The two in question consist of a call and a put, both expiring on Oct. 17, and both OTM (out of the money).
The long strangle strategy is a bet on higher volatility and significant share price movement in either direction. It involves buying a call option OTM and buying a put option OTM at a lower strike price.
In this case, you’re buying the $47.50 call and the $40.00 put. The options’ Vol/OI ratios yesterday were both over 59, putting them in seventh and eighth spots in the top 10.
In this instance, you want the share price to move beyond a specific range, either up or down, to profit from the trade.
Here are three long strangle possibilities based on the $47.50 call strike. The $40 put is the first of the three. It’s the one I’ll focus on. I’ll get to this shortly. First, I want to consider Carmax, the company, and the stock.
Carmax is the largest used-car retailer in the U.S. It also performs wholesale vehicle auctions and is considered one of the largest in the country. The company reported its Q2 2026 results yesterday before the markets opened. Its shares lost 20% on the news.
The company missed both its top and bottom-line analyst estimates for the quarter. Revenues were $6.6 billion, 6% lower than a year ago, and $410 million shy of the Wall Street consensus. It earned 99 cents in the quarter, six cents shy of analyst expectations.
While the revenue miss is concerning, the earnings miss isn’t as significant, given the current environment for automobile sales, both new and used.
The more concerning thing for investors is what comes next.
“‘For the quarter, each month was down year over year, and each month got a little weaker throughout the quarter,’ [CEO Bill Nash] told investors on the company’s quarterly call on Thursday. ‘But certainly, we put ourselves in a better position with the start of this quarter, both on an inventory position as well as from a pricing standpoint,’” CNBC reported.
The statement doesn’t instill a lot of confidence in future sales despite Nash’s best efforts to paint a brighter situation.
The reality is that most used-car buyers don’t have a lot of money lying around, despite the impressive run by the S&P 500, which is up nearly 13% in 2025.
According to Business Insider, U.S. household wealth reached $176.3 trillion at the end of June, $46 billion higher than it was at the end of 2019. In 2019, American households owned $29 trillion in equities through individual stocks, ETFs, and mutual funds. At the end of 2024, it was $48.5 trillion, and it has gotten higher in 2025.
My guess, however, is that most of that growth went to the top 10% of Americans, most of whom probably don’t buy used cars.
It’s not a reach to think Carmax’s situation will get worse before it gets better.
Thanks to yesterday’s steep decline, Carmax’s market value is down 44% in 2025, to $6.84 billion. Excluding the March 2020 correction, KMX hasn’t traded this low since 2016.
If I were a technical analyst, which I’m definitely not, one might look at its chart and think one of two things: either it’s about to rebound due to a decade-long floor or the stock’s about to break through its long-term moving averages and head even lower, perhaps into the $30s.
The Barchart Technical Opinion is a Strong Sell, with 100% near-term certainty that the share price will continue to decline.
However, of the 19 analysts that cover its stock, 11 rate it a Buy (3.84 out of 5), with a $77.94 target price, 71% higher than its current share price.
Of course, analysts, I would note, are generally slow to revise target prices downward, especially when they have buy ratings, so I wouldn’t necessarily take too much from Carmax’s target price.
While it’s tempting to buy on the dip, I suspect that more pain is coming for Carmax should a recession show up.
One thing that really concerns me is the ongoing spending by Americans despite a worsening job market. In the second quarter, the GDP rose 3.8% on an annualized basis, 80 basis points higher than the initial estimate, and much higher than in the first three months of the year.
However, a significant portion of the surge was due to the decline in imports resulting from tariffs, which artificially inflated the result.
Yahoo Finance reported that household debt in the U.S. reached $185 billion in the second quarter, with delinquent debt at 4.4%. Furthermore, 131,000 people filed for bankruptcy in the second quarter. Both are up from the first quarter of 2025.
I wouldn’t be buying Carmax stock at this point in the economic cycle, but that doesn’t mean you shouldn’t.
The $47.50 call, combined with the $40 put from the previous day, had a net debit of $205. So, to make money from this trade, Carmax’s share price needs to be above $49.55 or below $37.95. That’s an 8.9% move higher or 16.6% lower over the next three weeks.
However, the expected move is 7.38% in either direction, meaning trading above the upside breakeven seems more likely than the downside. There could be a bounce, but I wouldn’t hold your breath. The profit probability is just 27.3%.
If I had to bet on one of the three long strangles shown earlier, I’d go with the $45 put. It’s a bit more expensive with a net debit of $310, but the profit probability is considerably higher. Given Carmax’s momentum, breaking through $42 on the downside seems like the best bet.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com