Rivian tailspin hasn’t shaken one trader’s resolve
Everyone wants to buy the dip until the dip comes. Case in point: rivya.
Over the weekend, I wrote an article highlighting the new Rivian R2, a mid-size ESUV (electric sport utility vehicle… did I make up that acronym?) that I believe is poised to disrupt the sweet spot of the US auto market. Maybe you’ve read the article or seen one of several videos where I describe the car, the company, and the “Holly Index” – my wife ordered one, one of her colleagues ordered one, even my mother is considering ordering one.
You may have heard me say in one of my videos or the accompanying article that I discussed the fact that the company will definitely need to raise some capital because negative cash flow of nearly $9 billion through FY2029 exceeds the $4.8 billion in cash flow the company had at the end of Q1FY26.
I even went so far as to say that I thought the company should make a secondary offering rather than selling additional debt.
That’s exactly what the company plans to do Tuesday: sell about 75 million shares to raise capital. Shareholders were apparently surprised and disagreed, as the stock was still up nearly 15% in 8 trading sessions, selling for $3.65 per share on the news.
Rivian, YTD
Shares have moved back almost exactly to the 150-day moving average, popularized by my colleague and fellow CNBC contributor Carter Braxton, a portfolio manager and asset manager at Worth Charting. wrath – Worth Chart Options Income ETF.
The 150-day moving average, not coincidentally, is very close to the strike of the puts ($16), which I recommend selling, closed today at $1.45 per contract (9% of the strike price) and still looks like an interesting way to play a moderately bullish play here.
Reminder here. When investors place a put, they are willing to purchase the underlying stock at the strike prices of that put in exchange for the collected premium. You can think of a sell as an order below the market limit for which you get paid, and that’s why investors often use this strategy to initiate a position in a stock. I sold August 16 for $0.85, which means my breakeven point at expiration is $15.15, which is below where the stock was trading this morning despite the sell-off.
related to courseRivian needs to raise capital – building cars is a capital-intensive business, and Rivian needs to materially increase its capacity to prepare for what I believe will be high demand for its R2 ESUV in the mid-market. Stock is also the right way to do this; It provides more flexibility than debt would provide. If anything, I would think over 75 million shares, or just 6% of the IPO, would be eligible.
Here’s what’s interesting: An additional 75 million shares would only dilute an existing shareholder’s ownership by 6%, and that dilution would apply to a company that would need to have over $1 billion more cash on its balance sheet, excluding the offering; This is about a quarter of the cash needed in the bank.
So why did stocks fall so much?
The company will have enough post-offering cash to comfortably get into early 2027, during which time investors will be able to tap into the market’s appetite for R2. Even so, implied volatility, a measure of the “price” of options and investor uncertainty, rose to 97 percent year-over-year.
The only surprising thing about the offer I was presented with was this: investors They were surprised by this. This was the most obvious step imaginable. Why are investors pummeling the stock 16% for a 6% dilution that would improve the company’s short-term cash position? Despite a longer market advantage afforded by a stronger cash position, they appear to be pricing two more follow-on offerings of comparable size without increasing the company’s valuation.
Which brings me back to Carter Worth’s WRTH option income fund. I reached out to him for comment on Rivian; What does he think about the chart here? Does he believe it will hold the 150dma? Unfortunately, I didn’t hear from you before this article went to print, but maybe I don’t need to. His fund, WRTH, is called “completely transparent”; This means that the fund publishes its holdings every night. The fund has about 100 options positions overall, but one of them is a put position in Rivian. The portfolio is short 1,000 puts a $17 strike due July 17.
If actions speak louder than words, I don’t need him to call me back to share his thoughts; his trade reveals these, and they align with mine. Stay the course.
