Avis (CAR)

* CAR’s aggressive insider buying

Full disclosure here: I do not know Pentwater, but I have a ton of respect for them. Every time I’ve been in a position that overlaps with them, I’ve been impressed with the depth of their work and thought process when I’ve heard them speak about it. So I like to follow their 13-Fs / buying.

Recently, Pentwater has been aggressively buying Avis (CAR). But it’s not the buying itself that’s interesting; it’s how they’re doing it. Consider this form 4:

CAR’s stock has been trading for ~$95/share for most of this month. For some reason, Pentwater has decided a synthetic long (buying a call and selling a put at the same strike) is a better way to increase exposure than simply buying the stock. I’m sure Pentwater is a lot smarter than me and there’s a reason they chose that specific structure to increase their exposure to the stock…. but I’d be remiss if I didn’t note that CAR is a very tightly held stock as SRS and Pentwater now hold >60% of the stock between them.

Bloomberg tells me almost 50% of CAR’s free float is sold short; could Pentwater’s synthetic long create some fireworks (read: short squeeze) once they take delivery? And, on a fundamental level, it’s been a rough few years for rental cars…. is Pentwater seeing something in the data that suggests the capital cycle is about to turn? The combo of tightly held + lots of short interest + trough-ish cycle + a history of aggressive capital return from CAR could cause things to get spicy very quickly….