Billionaires Bet on Rivian

Since the start of the pandemic, the electric vehicle market has seen a rapid increase in competitors attempting to take down Tesla or at least have somewhat of an impact on the market. Many have fallen in recent months after their poor attempts. One company set the bar on the floor after fraudulently advertising a product that neither ran nor had any intention of being produced (it’s NKLA). A new company has emerged, one that is local to yours truly. 

Rivian automotive IPO’d in late 2021 at 106.75, 37% above its anticipated IPO price. Since then the stock has had a similar run as previous IPOs. The stock spiked during the first few trading sessions and has since declined 72% from its highs. Like many EV companies, RIVN will likely have delivery issues in the future. Towards the end of December, “RIVN announced delayed deliveries of its electric pickup truck and sports utility vehicle with big battery packs to 2023.” (Zacks) A brand new company like RIVN will continue to face issues like these until a solid manufacturer is provided. On paper, the company sounds great. Who wouldn’t want an electric vehicle that grants drivers a 400-mile range per charge, is eco-friendly, all-terrain, and has a slot for a portable stove? I would but I would also like to purchase stock in a company that is backed by both Amazon(20% stake) & Ford (12% stake). Unfortunately, I’ve been a witness to the “hot” EV names that trade on hopes and dreams and remain skeptical, until recently. 

Today, February 15th, reports of institutional investors purchasing RIVN had been released. Among them are George Soros Fund, purchasing 19.8 million shares and making Rivian Soros’ largest holding (28%). In addition to this, options flow shifted to the bullish side at the start of February with calls being accumulated for a large premium. On February 2nd the May 20th 100 strike calls were purchased for 5.6 million dollars in premium. On February 10th the March 18th 75 strike calls were purchased for 2.9 million dollars in premium and on February 14th the January 2023 60 puts look like they were sold with the implied volatility decreasing and premium dropping today (15th) from 19.50 (sale) to about 18.30. For those that follow me on Twitter, I consider option flow to be one of the strongest signals one can have due to the complexity of options trading and the large sizing seen in some purchases like the ones listed above. The option combined with the backing of George Soros is a convincing buy signal moving forward. Buyers believe the company will not be like the others and I can say that I’ve seen multiple Rivian trucks driving around my hometown. The stock is currently at 66.29. The IPO price is set at 78 dollars a share and hopefully, it can return to an all-time high at 179 by next year. With rate hikes around the corner and the market preferring valuation and numbers vs. projected growth, the company has a long uphill battle waiting for it. 

My trade idea: 

The stock price has hovered around 50-70 dollars since mid-January. To buy 100 shares in the company, a trader would need $6,622 (quick maf). Taking a look at the January 2024 contracts, the 100 strike call is priced at 21.20 x 23.45 (spread on 2/15/22). The contract has a delta of 0.60, giving you the exposure to 60 shares of RIVN technically. The delta will shift as the strike (100) gets closer or further from the actual price (66.22) but for the time being let’s stick with 60 shares. So about $2300 for exposure to 60 shares of stock vs buying 60 shares of stock (you can do) which would cost $3,973.20. As the price increases, the delta will shift in your favor and increase your delta exposure. This is likely the contract I will try and purchase this week or next after we get a clearer picture of what is going on in the market. The reason is that the return will be much larger if this all goes to plan. The lowest price the contract reached was 13.50 ($1350) when RIVN hit the low of $50. It has since almost doubled in value while the stock has gained $17 a share. This whole explanation is mostly for options traders and I hope you enjoyed reading it. Thanks!