A Different Kind of Short Squeeze ($CAR)

Avis Budget ($CAR).

"Total return swap" - just the phrase alone brings Bill Hwang to mind. A truly legendary figure.

The short squeeze in this stock is one of the more interesting market events I have come across lately. What makes it unusual is that it is not purely retail-driven. It has a very distinct structural cause. Put simply, there are really only two major institutions involved. The float was already thin, and whether by coincidence or by design - a distinction that matters enormously - two major institutions appear to hold an enormous share of the stock, somewhere around 80%. Layer that on top of already-strong short interest, and you get the squeeze we are seeing now.

But this is where it diverges from a typical retail squeeze: the unwind is not something retail can decide. It ultimately comes down to when the large institutional holders, or even management itself, choose to unlock and release their currently restricted shares into the market. That is where things become legally complicated, which is exactly why I said earlier that this could be intentional or coincidental.

There is still a lot I do not fully understand here. But one thing I am fairly confident about is this: there are many signs pointing toward potential market manipulation. When this squeeze finally unwinds, if any of the institutions or management have not sold their positions in time, there will likely be a lot of lawyers, and the SEC itself, asking very pointed questions. After all, fiduciary duty runs to clients.

For one of the parties, it is a genuinely difficult position. It sounds like the contracts they signed may prevent them from unwinding early. However, it seems they could use their total-return-swap shares to instruct the dealer to help suppress short interest. I do not fully understand the exact mechanics, but my broad understanding is that, for now, they simply cannot sell.

That leaves another institution, plus management itself. As for the company: negative equity, negative cash flow, and a very heavy debt load. If your stock has gone up five or six times in a single month and you are not issuing shares to at least pay down debt or flip equity back into positive territory, then someone is absolutely going to ask why you did not. In my view, that is one of the clearest grounds for SEC or legal scrutiny.

In my eyes, this is already an 80% to 90% likely outcome. But all parties can still build a defense. If they sell now and start taking profit while the squeeze is still running, they can argue there was no collusion or market manipulation. That makes it much easier to avoid criminal charges and argue the case successfully.

The other institution, whose name I have forgotten, holds somewhere around 60% to 70% of the shares, if I remember correctly. The same logic applies. It is an investment management firm. Its original investment has now multiplied five or six times, and everyone knows this squeeze is temporary. If it does not sell, and instead waits for the company to issue shares or for its lockup to expire, and by then the shares have collapsed, how does it explain that to its own clients? It also has a fiduciary duty.

So to me, this is a textbook prisoner's dilemma. Whoever among the three parties - the two institutions and management - sells first stands to take the most profit and has the easiest time showing that they did not engage in manipulation and did fulfill their fiduciary obligations. But nobody knows when to move, and the stock has simply gone insane. It was up 24% in a single day and up five or six times over the past week or month, with very little retail participation. That last part is what I find most bizarre.

That is the key difference from GME or BYND: this short squeeze was not created by retail at all. If none of the three parties gets charged in the end, I would call this one of the more genuinely fascinating legal case studies in recent memory. How do you argue your way out of market-manipulation claims? The only thing I can think of is the CZ playbook: donate heavily to the right political crypto organizations, and maybe the SEC looks the other way. Beyond that, I genuinely cannot think of how you cleanly escape legal scrutiny in the end.

Either way, I find this stock genuinely fascinating. Probably the most interesting market event I have seen all year. Worth sharing.

As of May 4, the trigger has been pulled by Pentawater. Now we wait and see how they handle the legal process.