Unusual Options Activity Supports Rivian (RIVN) But Infrastructure is Key

Amid the immediate fireworks, it’s difficult to not at least consider a bullish position in electric vehicle manufacturer Rivian Automotive (RIVN). Yes, the underlying market has struggled amid significant consumer headwinds. However, a major deal with German automotive giant Volkswagen (VWAGY) appears to have changed the paradigm for RIVN stock.

As Reuters explained, Volkswagen will provide as much as $5 billion of funding to Rivian, with the two enterprises agreeing to a technology joint venture. Leading up to the venture, Volkswagen’s software unit attempted to develop capabilities that would rival those of Tesla (TSLA). Unfortunately, the effort failed due to delays. It also incurred losses in part to procedural friction.

By partnering with Rivian, Volkswagen is able to jumpstart its EV ambitions. On the other end, Rivian receives a critical lifeline. Although an exciting alternative to Tesla when it first debuted, the bottom line cannot be sidestepped. Since its public market debut, RIVN stock dropped nearly 90% of equity value.

However, with the investment, Rivian has a chance to target the modest-income crowd with its upcoming R2, which starts at $45,000. Another vehicle, the R3, may arrive in 2027 – one year after the R2. Industry journal Car and Driver estimates that the R3 may feature a price starting at $37,000.

Logically speaking, the targeting of buyers with average incomes makes sense. It also puts RIVN stock under significant pressure.

Bullish Options Activity is Only Part of the Story for RIVN Stock

For the time being, enthusiasm generally appears positive for RIVN stock and that has extended into the derivative market. Following the close last Friday, Rivian ranked among the highlights in Barchart’s screener for unusual stock options volume. This data interface highlights big volume spikes that may indicate which ideas the smart money is interested in.

In the case of the EV manufacturer, total volume reached 421,496 contracts against an open interest reading of 2.73 million. Further, the difference between Friday’s volume and the trailing one-month average metric came out to 106.59%. Interestingly, call volume came out to 257,197 contracts versus 164,299 for the puts.

On surface level, the subsequent put/call volume ratio of 0.64 indicates more interest in calls than puts, which would have bullish implications. A look into Barchart’s options flow screener for RIVN stock – which focuses exclusively on big block transactions likely placed by institutions – shows a net trade sentiment of nearly $1.35 million, favoring the bulls.

It’s not that there weren’t any significant bearish bets. For example, on the pessimistic side, the biggest premium for options with bearish sentiment came out to $525,000. This was for an aggressive sold call with an expiration date of July 5. However, the most optimistic trade featured a premium of $1.5 million. This was for a sold put with a strike of $12.50 and an expiration date of Jan. 16, 2026.

Frankly, I’m not sure that was the most prudent idea available. Although RIVN stock gained 30% for the business week ending June 28, it dipped more than 7% on Friday. Conspicuously, when Rivian shares gapped up to start the morning of June 26, the price began steadily eroding. That’s not the most confidence-inspiring look.

As it turns out, the deal between Rivian and Volkswagen will be dilutive to existing stakeholders of RIVN stock. But that might not be the biggest concern here.

Fundamentals Support EV Infrastructure Players, Not Necessarily Individual Brands

For me, the problem with RIVN stock is that the underlying enterprise might not be the biggest beneficiary of its deal with the German automaker. Instead, it could be one of several of the EV infrastructure players. It has to do with the pros and cons of addressing certain segments of the income spectrum.

Previously, pure-play EV manufacturers seemed to favor the upper-income crowd. That made sense because affluent buyers are the ones that can afford EVs. Plus, there’s a direct correlation between income and homeownership: the bigger the income, the greater the chance that the earner owns his or her home. Obviously, homeowners have access to private charging solutions.

Of course, the math of addressing modest-income buyers also works. Simply put, there are more people who make around the median household income than there are those who make above it. But that also means such consumers are encumbered with challenges that affluent consumers may not be. In particular, middle-income folks might not own their own homes.

Or, in other cases, they may own condominiums that lack private garages. Such a framework means that this consumer demographic is more dependent on public charging solutions. As of now, that’s neither Rivian’s primary moneymaker nor its focus.

For now, RIVN stock has attracted the spotlight. But if other companies follow suit, a flood of low-priced EVs can potentially hit the market. In that scenario, I believe the infrastructure component would win out. Therefore, it pays to be cautious with Rivian.

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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.