Lewis Hamilton Should Change the Investment Narrative for Ferrari (RACE)

Let’s face reality – arguably most people are hesitant about betting on a high-flying enterprise like Ferrari (RACE) on the idea that it could fly higher still. Basically, through everyday life experiences, humans intuitively understand that the low-hanging fruit is easier plucked than the high-hanging one. However, in some rare cases, it’s worth going for the lofty produce, especially if they’re Ferrari-branded.

RACE stock is unique, offering a business model that few would even entertain as an intrusive thought. You see, Ferrari represents a racing operation first. Yes, it’s publicly traded on the global stage and so it must endure the dog-and-pony act that is part and parcel of being listed on the New York Stock Exchange. But make no mistake about it: Ferrari is about racing first and business second.

However, the reality is that the business is good simply because of the directive, legacy and mystique of the racing impetus. It’s something that no other auto manufacturer can match. Sure, you can talk about Toyota (TM) and General Motors (GM) and many other storied enterprises and their impressive racing pedigree. But they’re car companies.

Don’t get me wrong – they’re darn great at making vehicles for the masses. But at the end of the day, you’re not going to see too many folks rocking their Toyota or GM threads. If they did that, they would get mistaken for line mechanics at the local dealership.

In contrast, when people don attire with the Prancing Horse brand, it’s a tribute – in much the same way that sports fans love wearing Dallas Cowboys or New York Yankees jerseys. The comparison is simply fallacious, even though at the core, RACE stock is no different than TM or GM shares.

So, Ferrari signing Formula One superstar Lewis Hamilton to a multi-year deal is a massive one for the world of motorsports. But it’s also a needle mover for RACE stock.

RACE Stock Attracts Options Traders

Unsurprisingly on Thursday – the day Ferrari announced a strong earnings print and the Lewis Hamilton contract – RACE stock ranked among the most heavily traded derivatives. Specifically, total volume reached 11,062 contracts against an open interest reading of 19,083. Further, the delta between the Thursday session volume and the trailing one-month average metric came out to 627.76%.

Drilling down, call volume reached 7,146 contracts while put volume landed at 3,916 contracts, yielding a put/call volume ratio of 0.55. On paper, more traders are engaging call options, which sounds bullish. However, Fintel’s options flow screener showed that on Thursday, a major entity sold 503 contracts of the Mar 15 ’24 360.00 Call. The premium received came out to about $1.39 million.

Assuming that this is not part of a multi-tier strategy, that’s an awfully aggressive and bearish bet. At the time of the transaction, RACE stock exchanged hands at $381.66. And while shares suffered a loss of almost 3% on Friday, that’s still a long way to go from the closing price of $379.25 to the $360 strike.

In addition, the market doesn’t seem to be giving a great deal to go bearish. For example, on Friday’s unusual options activity screener for RACE stock, the most aberrant trade based on the volume-to-open-interest ratio was the Mar 15 ’24 420.00 Call. Here, the bid-ask spread as represented by the midpoint price came out to 33.83%.

Based on the rough equivalent risk on the out-the-money put side, the spread for the Mar 15 ’24 340.00 Put calculates to 24.47%. Obviously, there’s an incentive to consider the put rather than the call based solely on the spread. However, the put lost value of 14.29% while the call lost almost 58% of value. So, in a real-time sense, the call is looking mighty attractive.

Fundamentally, it comes down to what is more of a likely scenario for RACE stock? To rise higher by about 10% from Friday’s close or fall by 10%? I’d argue that the former scenario has a more credible path.

Signs Point to Sustained Bullishness

To be fair, it’s difficult to ascertain the near-term situation of RACE stock or any security for that matter. However, looking at RACE’s technical chart, the security blew past its 50-day moving average (standing around $351). Previously, it imposed upside resistance against Ferrari stock. However, with the company’s outstanding fourth-quarter earnings beat, the sentiment is more than justified.

For RACE stock to go back down 10%, I would imagine that there would have to be a reason for it. We’re not talking about some no-name penny stock. Rather, this is Ferrari, a globally recognized brand.

Now, some might argue that the valuation for RACE stock is sky-high. I won’t argue against that point. However, we also must consider that Ferrari sells nearly as much merchandise as it does exotic cars. It’s not just a car company but a prestigious lifestyle brand. People bleed Ferrari red. They don’t bleed GM blue. With Hamilton’s signature secured – and the anticipation of his first stint at Ferrari – those merchandise sales will go through the roof.

We’re not just talking about some random competitor. This is Lewis Hamilton. He’s to Formula One what Michael Jordan is to basketball or more recently what Shohei Ohtani is to baseball. He transcends the sport.

And he’s going to hook up with the biggest racing brand in the world? Come on – this is money. Certainly, it’s not the time to go bearish on RACE stock.

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