Everyone wants to buy a push until it becomes a push. Case in point: Rivian.
Last weekend I wrote an article focusing on the new Rivian R2. This is a mid-size ESUV (electric sport utility vehicle…did I just come up with that acronym?) that I believe is poised to upend the sweet spot of the U.S. auto market. Maybe you’ve read this article or watched one of several videos where I discuss cars, companies, and the “Holly Index.” My wife ordered it, one of her colleagues ordered it, and even my mom is thinking of ordering it.
You may have heard what I said in one of my videos or read the accompanying article about the fact that the company definitely needs to raise capital, as its approximately $9 billion in negative cash flow through fiscal 2029 exceeds the $4.8 billion in cash the company had on hand at the end of Q1 2026.
I went so far as to say that I thought we should do an equity offering rather than sell additional debt.
That’s exactly what the company announced Tuesday that it plans to sell about 75 million shares to raise capital. Shareholders were clearly surprised and disagreed, as the stock fell $3.65 per share on the news, but was still up nearly 15% in eight trading sessions.
Rivian, YTD
The stock has returned almost exactly to the 150-day moving average popularized by my colleague and CNBC contributor Carter Braxton, portfolio manager at Worth Chart. worth – An options income ETF worth charting.
It’s no coincidence that the 150-day moving average is very close to the strike price of the put I recommended short ($16 in August), and today’s closing price is $1.45 per contract (9% of the strike price), but it still looks like an interesting way to make a reasonably bullish play here.
Please remember here. When a trader sells a put, they are willing to buy the underlying stock at the put’s strike price in exchange for the premium they collect. Selling a put can be thought of as a limit order below the market price, and you get paid for it. Therefore, traders often use this strategy to initiate positions in stocks. I sold August 16th for $0.85. This means that the breakeven point on expiration is $15.15, which is slightly below where the stock is at this morning, despite the drop.
Of course, Rivian has to raise capital. Automobile manufacturing is a capital-intensive business, and Rivian will need to significantly increase its production capacity to meet the high demand for its mid-market R2 ESUV. Equity is the right way to go as well and offers more flexibility than debt. In fact, we thought more than 75 million shares, or just 6% of the float, would have been appropriate.
There is an interesting point here. The additional 75 million shares would dilute existing shareholders’ ownership by just 6%, and that dilution would be applied to a company that would have more than $1 billion more in cash on its balance sheet after the initial public offering, or a quarter of its cash needs in the bank.
So why have stock prices fallen so much?
Following its initial public offering, the company will have enough cash to take it well into early 2027, by which time investors will have access to market demand for R2. Despite this, implied volatility, the “price” of options and a measure of investor uncertainty, has risen to the 97th percentile this year.
The only thing that surprised me about this proposal was that investors were surprised by it. It was the most obvious step imaginable. Why would investors price the stock at 16% for a 6% dilution that would improve the company’s near-term cash position?Despite the benefit of a longer runway from a stronger cash position, they appear to be pricing in two more similar-sized follow-on products without increasing the company’s valuation.
So, back to Carter Worth’s WRTH Option Income Fund. We reached out to him for comment on Rivian. What does he think about the charts here? Does he believe he can hold 150dma? Unfortunately, there was no response by the time this article went to print, but maybe he doesn’t need to. His fund, WRTH, is a so-called “fully transparent” fund, meaning the fund discloses its holdings to the public every night. There are approximately 100 option positions across the fund, one of which is a put position in Rivian. His portfolio is short on $1,000 and a $17 put expiration due on July 17th.
If actions speak louder than words, I don’t need him to call me back to share his thoughts. His transactions reveal them and they match mine. Stay the course.
