long/short: recent Avis squeeze looks like a famous 2008 squeeze (Pt. 2)
A GFC side-quest worth binging
Basis Northwest 2026 is sold out.
Tax-aware long/short strategies have dominated the discussion in tax management for the last year or so. Assets are well above $150 billion now.
You can get up to speed on tax-aware long/short here.
The prudent question is… what could go wrong?
Schwab’s margin risk addendum has several interesting notes on risk.
One risk the addendum mentions is short squeeze, which SEC defines as…
The term “short squeeze” refers to the pressure on short sellers to cover their positions as a result of sharp price increases or difficulty in borrowing the security the sellers are short. The rush by short sellers to cover produces additional upward pressure on the price of the stock, which then can cause an even greater squeeze.
This is timely because Avis (CAR) recently went through one (see Part 1).
Below is a quick update on the Avis saga.
That story has evolved interestingly in the past couple of weeks:
The hedge fund that had accrued a substantial position sold a bunch.
Avis's CEO accused the hedge fund of breaking the rules, and the hedge fund agreed to disgorge some of its profits.
The share price came down from the squeeze peak, as have borrow fees.
When Avis was squeezing (rapid share price increase), 4 groups of advisers and investors wrote to me:
Panicked: How could this happen?!
Nonchalant: Boy, that was rough, oh well.
Unaware: What’s happening?
Opportunistic: Should we short more?
Many managers said Avis was easy to sidestep or had only a minor impact on portfolio performance, or that they partially covered some shorts that had gotten a little heavy. At least one suggested the squeeze could be an opportunity to add to the short.
What’s the “right” reaction to a short squeeze? And could history help?
Today, a look back at an important lesson from 2008: The VW short squeeze.
