Could Aggressive Options Traders Win Out with Rivian Automotive (RIVN)?

Is the latest announcement from upstart electric vehicle manufacturer Rivian Automotive (RIVN) enough to turn the tide for the embattled organization? For aggressive traders, the answer appears to be yes, with RIVN stock making some noise in the options market. At the same time, market participants will need to be quick on the trigger as broader economic concerns weigh heavily on EVs.

In addition, an ongoing price war in the underlying sector clouds the viability of most enterprises not named Tesla (TSLA). Indeed, while TSLA popped almost 79% higher since the beginning of this year, rival RIVN stock slipped nearly 13%. To be fair, both look ugly against a trailing-year basis. However, with Rivian needing to prove itself more so than Tesla, traders need to take this reality into account.

Still, the latest development is awfully intriguing for speculators. Here’s what to look out for.

Why Did RIVN Stock Pop on Friday?

Following some choppy trading last week due to wider concerns associated with the debt ceiling crisis, RIVN stock finally got back in business for the bulls. On Friday, several media sources announced that the first R1T electric truck integrated with Rivian’s new dual-motor Enduro drive unit rolled off the assembly line. The Enduro should deliver significant efficiency and cost profile benefits.

First and foremost, Rivian builds the Enduro in-house, whereas the current R1T and R1S (electric SUV) run on a third-party quad-motor drive unit. Second, with less energy consumption with only a relatively modest penalty in performance, the Enduro-integrated EVs should expand Rivian’s total addressable market.

Significantly, efficiency issues imposed a blemish on an otherwise attractive package. According to Edmunds, the Rivian R1T represents “by far the least efficient EV” the company has tested. It then goes on to state that the R1T’s consumption rate lands at 46.9 kWh/100 miles, translating to using nearly 23% more energy per 100 miles than the next-most power-hungry EV Edmunds has tested, the Audi e-tron Sportback.

Therefore, drivers should be able to enjoy robust range at a conspicuously lower price. With the Enduro drive unit, prospective customers can order their R1T at a starting price of $73,000. Last year, MotorTrend reported that Rivian raised the price of the cheapest quad-motor R1T Max pack to $90,315.

Perhaps not surprisingly, bullish traders jumped on the opportunity. Following the May 26 close, RIVN stock ranked among the highlights for Barchart’s screener for unusual options activity, specifically call options with a $17.50 strike price with an expiration date of July 21, 2023.

At time of writing, this setup gives 55 days till expiration. Further, the bid-ask spread as represented by the midpoint price (85 cents) came out to 4.71%. Volume hit 13,407 contracts against an open interest reading of 2,971.

Though tempting, should traders bite or wait for a better opportunity?

Economic Concerns Weigh Heavily on Rivian, Other EVs

On surface level, momentum seems to favor RIVN stock. On Friday, shares gained nearly 4% of equity value. For last week, they moved up 12%. Closing at $15.14, RIVN will need to gain almost 16% in the open market for the aforementioned calls to be at the money. It’s a risky wager but also not entirely unrealistic given the potentially game-changing Enduro drive unit.

Discussing the team’s recent success, Rivian vice president of manufacturing operations Tim Fallon stated that, “[i]ntroducing our dual-motor variants is a major milestone in ramping our facility to its full capacity, and they [employees] have done a great job working across so many functions to make this happen.”

It’s not just empty words. With a price war brewing in the EV space, any advantage helps. Already, Rivian’s distinct design element cuts a clear alternative to Tesla, which has started to stale somewhat with its now- boring and predictable design language (in my opinion).

Nevertheless, economic concerns will almost surely weigh heavily on sentiment for RIVN stock. Undoubtedly, a savings of over 19% between the cheapest Enduro-integrated R1T and the cheapest quad-motor R1T Max is nothing to scoff at. However, for the average household, there’s nothing cheap about $73,000.

According to the U.S. Census Bureau, the real median household income was $70,784 in 2021. So, if Rivian expanded its market, it probably didn’t do so by very much.

As well, investors must also consider the rising number of mass layoffs. Eventually, even those who are considered well-off right now might not be doing so well later on.

A Near-Term Idea But Long-Term Question Marks Remain

If forced to give an answer, I’d say that RIVN stock enjoys enough near-term momentum to see sizable gains over the next few weeks. Technically, there’s an argument to be made that shares may have gotten oversold. Therefore, the drive unit news may help temporarily invigorate its price action.

Over the long run, though, that’s where I’m going to hesitate. Price wars and pressures on the consumer economy generally don’t bode well for companies tied to discretionary sentiment – especially if they’re selling products priced at or above the U.S. median household income.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.