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Avis Shares Plunge as Short Squeeze Unwinds
23 Apr
Summary
- Avis Budget shares plummeted after a dramatic rally pushed by hedge fund activity.
- Short sellers faced billions in losses before the stock's value began to decline.
- Hedge fund Pentwater Capital significantly reduced available shares, fueling the squeeze.
Avis Budget Group experienced a significant stock price correction, signaling the unwinding of a powerful short squeeze. Earlier in April, the car rental company's shares had seen an extraordinary surge, increasing by over 480% and reaching record highs. This rally dramatically inflated its market capitalization from $5 billion to over $26 billion.
The subsequent drop saw Avis's stock decrease by approximately 38% by the closing bell. This downturn concluded a difficult period for short sellers, who had incurred substantial mark-to-market losses. Data indicated that these losses amounted to $5.8 billion for those betting against the stock since the start of the year.
The rally bore resemblances to the 2021 "meme stock" phenomenon, but unlike then, retail investors were not the primary drivers this time. Instead, hedge fund Pentwater Capital began increasing its substantial Avis holdings in late March, acquiring millions more shares and exercising options, thereby reducing the public float.
With Avis heavily shorted prior to its rally—54% of its free float was shorted as of late March—rising prices forced short sellers to cover their positions. This buying pressure exacerbated the price increase, a classic short squeeze scenario. Pentwater Capital's significant involvement, including exposure through equity swaps, was a key factor.
