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Electric vehicle manufacturer Rivian Automotive (RIVN) was in the spotlight last week but for all the wrong reasons. Although some details of the company’s latest earnings print provided an encouraging framework, the overall narrative was incredibly cloudy, leading to a mass-scale exit from RIVN stock. Still, is the red ink an opportunity for extreme bargain hunters?
As with anything involving EVs these days, it’s complicated.
Let’s start with the positives. Overall, the fourth-quarter print was roughly in line with Wall Street’s expectations. Revenue landed a bit higher than what Wall Street had anticipated, coming in at $1.32 billion against the targeted tally of $1.26 billion. On the other hand, the loss per share of $1.36 widened against the consensus target of $1.32. Still, the net loss represented a 21% improvement from the year-ago quarter.
However, there was plenty of not-so-great news. For one thing, cash used in Q4 represented a 26% widening against Q3’s metric. Moreover, management announced that it will reduce its salaried workforce by about 10% as part of the company’s initiative to increase efficiency and cut costs.
The big one in terms of negative catalysts centered on the 2024 production guidance. At only 57,000 units projected this year, this haul will be slightly less than the production level of 57,232 vehicles last year. Back then, the aforementioned count represented a 135% year-over-year lift.
As Barchart content partner The Motley Fool mentioned, this year’s production outlook is disappointing but not surprising. Amid a full-blown price war, Rivian and the rest of the EV industry suffered from macroeconomic headwinds, in particular stubbornly elevated inflation and high interest rates.
Still, because RIVN stock is hurting so badly, it’s reasonable to conclude the following: Rivian lacks pricing power. Therefore, the longer-term narrative is very much suspect because the macro environment might improve only gradually.
RIVN Stock Stands on Shaky Ground
Divorced from any other context, RIVN stock might seem an opportunity for the extreme bargain hunter. To be blunt, it’s a very tempting proposition, particularly thanks to the powerful tools that Barchart offers. Specifically, one mechanism to consider is the “Trader’s Cheat Sheet.” Personally, I love this feature because it readily tells me key support and resistance levels.
Further, by taking the average true range (9-day period) from Barchart’s Technical Analysis screener for RIVN stock and adding it to the security’s “Pivot Point” price ($10.38), we can get an idea of the highs and lows for trading the EV manufacturer. Conducting this exercise, we get a range of $9.10 to $11.66.
Interestingly, these figures roughly align with the first level of support and the third level of resistance based on standard deviation calculations. Given that RIVN stock lost almost 38% of equity value in the business week ended Feb. 23, it’s possible – if not likely – that the next few moves could be in the black.
Still, after having your fun day trading RIVN stock, what does the outlook suggest a month out? A quarter? A year? It’s in these forward timeframes that the fundamentals begin to matter.
As you might imagine, the options flow screener on Thursday showed multiple bearish transactions, particularly bought puts with a strike price of $10 and sold calls with a strike price of $12.50. However, when the dust settled from Friday’s action, Barchart data revealed bought puts at $7.50. Even more worrisome (in my opinion), a trader (or traders) sold to open 10,296 contracts of the RIVN Mar 28 ’24 10.00 Call.
What catches the eye of a sold call is the risk profile. If uncovered, the call writer would be on the hook to cover the position at increasingly higher rates if the tactic backfires. Either way, a sold call represents an underwriting of risk that the target security will not rise above the listed strike price. If it does, the call writer would be forced to sell the stock upon contract exercise.
Stated differently, there’s an obligatory component to a sold call that makes the tactic potentially aggressive. With the line in the sand set at $10 – just 7 cents below Friday’s closing price – not much ambiguity exists regarding trading sentiment.
Make Your Money and Run
So, what’s the best way to play RIVN stock? To extract maximum value on both sides of the table, traders may consider betting on the dead-cat bounce. Early next week, speculators can possibly scalp some profits to the upside. However, the move may be short-lived.
Keep a close eye on Barchart’s first and second pivot point resistance levels. These are $10.71 and $11.34, respectively. At the third pivot point of $11.67, traders would be really pushing it. And that’s because arguably, the fundamentals align with the bearish proposition.
As stated earlier, Rivian lacks purchasing power. In other words, the company can’t just price its products at whatever it wants and expect customers to pay. Indeed, the very notion of a sector price war and mass layoffs contradicts the narrative that circumstances are A-OK in the EV space.
After you’ve made your money with the short-term bullish swing, it’s time to consider the downside. If RIVN stock does dead-cat bounce, the put options should carry a cheaper premium. If they do, market gamblers should think long and hard about “negative” profitability.
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.
