{"id":111879,"date":"2021-11-18T10:55:00","date_gmt":"2021-11-18T15:55:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=111879"},"modified":"2022-11-21T09:49:25","modified_gmt":"2022-11-21T14:49:25","slug":"it-takes-guts-to-play-rivian-options-heres-how-to-do-it","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/options\/it-takes-guts-to-play-rivian-options-heres-how-to-do-it\/","title":{"rendered":"It Takes Guts to Play Rivian Options. Here\u2019s How to Do It."},"content":{"rendered":"\n

We noted last week<\/a> that stocks were so robust that it can now be said that pigs\u2014once said to get slaughtered\u2014make more money than bulls or bears.<\/p>\n\n\n\n

By Tuesday, as if to test our new axiom, the options exchanges listed Rivian Automotive <\/a>(ticker: RIVN), one of the world\u2019s hottest stocks<\/a>. It\u2019s now possible to use just a little money to wager on a company that could be to electric trucks what Tesla <\/a>(TSLA) is to electric cars.<\/p>\n\n\n\n

Rivian\u2019s R1S sport-utility vehicle and R1T pickup are a sight to behold. Its commercial vans, which are optimized for delivery and logistics, have attracted an early order from Amazon.com <\/a>(AMZN). Early investors included Ford Motor <\/a>(F), T. Rowe Price Group <\/a>(TROW), and Amazon.<\/p>\n\n\n\n

Rivian\u2019s future seems extraordinarily intriguing, and thus the fear and greed premiums baked into each of Rivian\u2019s put and call options are extraordinarily high.<\/p>\n\n\n\n

Rivian\u2019s implied volatility levels\u2014essentially the options market\u2019s educated guess at how likely the stock is to move, up or down\u2014are about 130%. The S&P 500 index<\/a>, by comparison, has an implied volatility of 17%. High volatility signals a strong likelihood of significant stock swings.<\/p>\n\n\n\n

That suggests that Rivian\u2019s just-listed options may prove to be even hotter, and more active, than the stock.<\/p>\n\n\n\n

With just a little money, investors can try to profit from Rivian\u2019s stock\u2019s movement. An options contract covers 100 shares of stock, but puts and calls<\/a> cost a fraction of the price of the shares. The returns on an options contract can be stunning.<\/p>\n\n\n\n

For anyone who has a big enough risk budget\u2014meaning you can afford to lose the money and it will not affect your life\u2014Rivian\u2019s options could be a gift from the market gods. Aggressive investors can consider a strategy we have often recommended for Tesla: the risk reversal.<\/p>\n\n\n\n

By selling a put and buying a call with a higher strike price but with the same expiration, investors can get the options market to pay for all, or some, of a stock\u2019s potential advance. In return, you must be willing to buy the stock if it declines.<\/p>\n\n\n\n

With Rivian\u2019s stock at $146, aggressive investors can sell Rivian\u2019s December $125 put for about $11.70 and buy the $160 call for about $16. If Rivian is at $200 by expiration\u2014and why not?\u2014the call is worth $40.<\/p>\n\n\n\n

If the stock runs out of juice and declines, be prepared to buy it. If the stock is at $100\u2014and why not?\u2014investors would be obligated to buy the stock at $125 or adjust the put to avoid assignment.<\/p>\n\n\n\n

In Rivian\u2019s brief existence, shares have ranged from $95.20 to $179.47. They doubled since the company went public on Nov. 10 at $78\u2014and closed on Wednesday 19% below their peak. It\u2019s impossible to know whether Rivian will trade like an unhinged meme stock propelled by greedy investors, or if the shares and options will fall back to earth.<\/p>\n\n\n\n

The company has never sold a truck. It has no revenue. Anyone who preordered a truck could buy into the initial public offering\u2014even though they could cancel their orders. Yet the IPO is in an elite class<\/a>. In the past five years, just seven other billion-dollar IPOs have advanced for five straight days.<\/p>\n\n\n\n

Rivian is an example of the extraordinary excesses that have come to define the options market, as the stock market continues to trade at all-time highs. It is also everything that is great about America.<\/p>\n\n\n\n

Robert J. Scaringe, the company\u2019s founder, worked on cars as a little boy in his neighbor\u2019s garage. His boyhood room was littered with parts. He has followed his passion and become an entrepreneur who has captivated the world with his vision. The options market is saying that the excitement is far from over.<\/p>\n\n\n\n

—<\/p>\n\n\n\n

Originally Posted on November 18, 2021 – It Takes Guts to Play Rivian Options. Here\u2019s How to Do It.<\/a><\/p>\n\n\n\n

Steven M. Sears is the president and chief operating officer of Options Solutions, a specialized asset-management firm. Neither he nor the firm has a position in the options or underlying securities mentioned in this column.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Rivian\u2019s future seems extraordinarily intriguing, and thus the fear and greed premiums baked into each of Rivian\u2019s put and call options are extraordinarily high.<\/p>\n","protected":false},"author":31,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6,19,8,9,22,26,3],"tags":[4177],"contributors-categories":[13583],"class_list":{"0":"post-111879","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-north-america","7":"category-options","8":"category-region","9":"category-securities","10":"category-stocks","11":"category-text-articles","12":"category-traders-insight","13":"tag-rivian","14":"contributors-categories-barrons"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"\nIt Takes Guts to Play Rivian Options. 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