KMX Plunges 19%: A Perfect Storm of Earnings Woes and Sector Headwinds

Summary
• CarMax (KMX) slumps 19.0% to $46.2, breaching its 52-week low of $42.75
• Q2 earnings miss by 40% and revenue drop 6% to $6.59B, with CAF income down 11.2%
• Options pits show 24x surge in bearish puts, with October 40 puts dominating

CarMax’s stock has imploded on Thursday, trading 19.0% below its previous close amid a disastrous Q2 earnings report. The used-car retail giant’s revenue and earnings collapsed, while its Auto Finance segment faced loan loss provisions. With the stock now trading near its 52-week low and sector peers like Autonation (AN) also retreating, the bearish momentum is palpable. Traders are piling into deep out-of-the-money puts, signaling a potential short-term bottoming process.

Q2 Earnings Miss and Loan Loss Provisions Trigger Sell-Off
CarMax’s Q2 earnings report ignited a selloff as the company missed both revenue and earnings estimates by wide margins. Earnings per share of $0.64 fell 24.7% year-over-year and 40% below the $1.09 consensus. Revenue of $6.59B declined 6% year-over-year, with retail and wholesale unit sales dropping 5.4% and 2.2%, respectively. The CarMax Auto Finance (CAF) segment, a key profit driver, saw income fall 11.2% due to a $142.2M increase in loan loss provisions. Management’s admission of worsening performance in 2022–2023 loan vintages, despite ongoing underwriting tightening, signaled deteriorating credit quality. The stock’s 19.0% intraday drop reflects a sharp repricing of its earnings model and long-term guidance uncertainty.

Auto Retail Sector Under Pressure as AN Slides 1.97%
The auto retail sector is broadly under pressure, with Autonation (AN), a sector leader, down 1.97% intraday. CarMax’s struggles mirror broader industry headwinds, including weaker consumer demand, rising interest rates, and inventory challenges. While AN’s decline is more moderate, the sector’s synchronized weakness underscores macroeconomic fragility. CarMax’s 19.0% drop, however, is more severe due to its Q2 results and CAF’s credit deterioration, which amplify its vulnerability compared to peers with stronger balance sheets.

Bearish Options Play: KMX20251017P45 and KMX20251121P45 Lead the Charge
• RSI: 34.3 (oversold)
• MACD: -0.514 (bearish divergence)
• 200D MA: $70.73 (far above current price)
• Bollinger Bands: Price at 57.16 (lower band), 60.06 (middle), 62.96 (upper)
• Support/Resistance: 58.38–58.48 (30D), 65.71–66.40 (200D)

KMX’s technicals paint a dire picture. The RSI at 34.3 suggests oversold conditions, but the MACD’s -0.514 and bearish histogram (-0.369) indicate momentum is firmly on the downside. The stock is trading far below its 200D MA ($70.73), with Bollinger Bands showing extreme compression at the lower end. Key support levels at $58.38 and $58.48 are critical for near-term stability. The 52-week low at $42.75 remains a hard floor to watch.

Top Option 1: KMX20251017P45
• Code: KMX20251017P45
• Type: Put
• Strike Price: $45
• Expiration: 2025-10-17
• IV Ratio: 46.14% (moderate)
• Leverage Ratio: 28.93% (high)
• Delta: -0.394 (moderate sensitivity)
• Theta: -0.0089 (slow decay)
• Gamma: 0.0722 (high sensitivity to price moves)
• Turnover: $566,992
• Payoff at 5% Downside (ST = $43.89): $1.11 per contract
• Why: This put offers high leverage (28.93%) and gamma (0.0722), making it ideal for a 5% downside scenario. The moderate IV (46.14%) and high liquidity (turnover of $566K) ensure tradability. The -0.394 delta suggests it will gain value as the stock drops further.

Top Option 2: KMX20251121P45
• Code: KMX20251121P45
• Type: Put
• Strike Price: $45
• Expiration: 2025-11-21
• IV Ratio: 41.65% (moderate)
• Leverage Ratio: 19.16% (high)
• Delta: -0.3997 (moderate sensitivity)
• Theta: -0.0105 (slow decay)
• Gamma: 0.0506 (moderate sensitivity)
• Turnover: $304,341
• Payoff at 5% Downside (ST = $43.89): $1.11 per contract
• Why: This put offers a longer time horizon (November expiration) with similar leverage (19.16%) and delta (-0.3997) as the October contract. The lower gamma (0.0506) reduces sensitivity to price swings, making it a safer bet for a gradual decline. The 41.65% IV and $304K turnover ensure liquidity.

Trading Setup: Aggressive bears should prioritize KMX20251017P45 for a short-term play, while KMX20251121P45 suits a more conservative, longer-term bearish stance. Both contracts align with KMX’s technical breakdown and sector weakness. If the stock breaks below $42.75, the 52-week low, the put options could see exponential gains.

Backtest Carmax Stock Performance
Key Take-aways 1. Frequency of plunges: 20 separate −19 % (or larger) single-day drops since 2022. 2. Post-event performance: The stock showed persistent weakness. 30-day cumulative return after each plunge averaged −8.9 %, with barely one-third of events turning positive at any time. 3. Statistical significance: The negative drift becomes statistically significant from Day 2 onward and stays so through Day 30. 4. Practical implication: Buying immediately after a −19 % intraday collapse has not been a winning mean-reversion trade in KMX during this period.You can explore the interactive event-study charts and tables below.Feel free to adjust the event threshold or holding horizon if you want to dig deeper.

KMX at 52-Week Low: Time to Buy the Dip or Ride the Downslide?
CarMax’s 19.0% plunge to $46.2 has pushed it to its 52-week low, with technicals and fundamentals in sync for further downside. The Q2 earnings miss, CAF credit deterioration, and sector-wide headwinds suggest the sell-off is far from over. Traders should monitor the $42.75 level for a potential bounce or breakdown. Meanwhile, Autonation (AN)’s 1.97% decline highlights sector fragility. For those with a bearish bias, the KMX20251017P45 and KMX20251121P45 puts offer high-leverage, high-gamma exposure to a stock in freefall. If $42.75 breaks, the 52-week low, the puts could surge as the stock tests multi-year lows.