Everyone wants to buy the dip, until the dip arrives. Case in point: Rivian.
Over the weekend, I wrote an article highlighting the new Rivian R2 — a mid-sized ESUV (electric sports utility vehicle…did I just make up that acronym?) that I believe is poised to upend the sweet spot of the U.S. auto market. Perhaps you read the article, or perhaps you saw one of a couple of videos where I discussed the car, the company and the “Holly Index” – my wife ordered one, one of her colleagues ordered one, even my mother is thinking about ordering one.
You may have heard me say in one of my videos or read in the accompanying article that I discussed the fact that the company would certainly need to raise some capital, as the approximately $9 billion in negative cash flow through FYE2029 exceeds the $4.8 billion in cash the company had on hand at the end of Q1 26.
I even went so far as to say I thought the company should do a secondary offering rather than sell additional debt.
Which is precisely what the company announced Tuesday that they intend to do — sell ~75 million shares to raise capital. Shareholders were apparently surprised and disagreed, as the stock sold off $3.65/share on the news, although it’s still up nearly 15% in 8 trading sessions.
Rivian, YTD
The shares have returned almost exactly to the 150-day moving average, popularized by my colleague and fellow CNBC contributor, Carter Braxton Worth of Worth Charting, and portfolio manager of WRTH – the Worth Charting Options Income ETF.
The 150-day moving average is, not coincidentally, very close to the strike of the puts I recommended selling — the August $16s — which closed today at $1.45/contract (9% of the strike price) and still look like an interesting way to make a moderately bullish play here.
Reminder here. When traders sell puts, they are willing to buy the underlying stock at that put’s strike prices in exchange for the collected premium. You can think of put selling as a below market limit order for which you get paid, and because of that, traders often use the strategy to initiate a position in a stock. I sold the august 16 for $0.85, which means my breakeven on expiration is $15.15, sill below where the stock is trading this morning despite the sell-off.
Of course, Rivian has to raise capital — manufacturing cars is a capital-intensive business, and Rivian needs to ramp its capacity materially to prepare for what I believe will be high demand for its mid-market R2 ESUV. Equity is the right way to do it as well — it provides more flexibility than debt will. If anything, I would have thought more than 75 million shares, just 6% of the float, might have been appropriate.
Here’s the curious bit: an additional 75 million shares would dilute an existing shareholder’s ownership by only 6%, and that dilution would be for a company that, net of the offering, should have another $1 billion+ in cash on the balance sheet – a quarter’s worth of needed cash in the bank.
So why were the shares down so much?
The company will have enough cash post-offering to comfortably get into early 2027, by which time investors will be able to access the market’s appetite for the R2. Despite this, implied volatility, aka the “price” of options and a measure of investor uncertainty, rose to the 97th percentile looking back on the year.
The only thing surprising about the offering to me was that investors were surprised by it. It was the most obvious step imaginable. Why are investors hitting the stock 16% for a 6% dilution that improves the company’s near-term cash position? They appear to be pricing in two more follow-on offerings of comparable size without boosting the company’s valuation, despite the benefit of a longer runway that a stronger cash position provides.
Which brings me back to Carter Worth’s WRTH option income fund. I reached out to him for comment about Rivian – what does he think about the chart here? Does he believe it will hold the 150dma? Unfortunately, I did not hear back before this article went to print, but maybe I don’t need to. His fund, WRTH, is what is called “fully transparent” – meaning the fund publishes its holdings nightly. There are about 100 option positions in the fund overall, but one of them is a put position in Rivian. His portfolio is short 1,000 July 17th expiration $17 strike puts.
If actions speak louder than words, I don’t need him to call me back to share his thoughts; his trade reveals them, and they’re aligned with mine. Stay the course.
