Reddit Stock Plunges 26% From Highs, Yet Call Options Have Surged 575%: Is A Rebound Brewing?

Zinger Key Points

Reddit stock plunges 26%, but call options surge 575%, signaling potential bullish bets on a rebound.
Hedge funds increase positions despite weak user growth, focusing on international expansion and adtech innovations.
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Reddit Inc RDDT stock has been in free fall, shedding 26% since hitting a 52-week high of $230.41 on Feb. 10. The sell-off, sparked by a post-earnings user growth miss and CEO Steve Huffman‘s hefty $70.5 million share sale, has rattled investors.

But is the market overreacting?

Google’s Punch, Reddit’s Comeback

The fourth quarter earnings report was a mixed bag. While revenue soared 71% year over year and EPS beat estimates, daily active users dipped — a direct hit from Google’s search algorithm tweak.

But CEO Huffman assured investors that traffic already rebounded in the first quarter, suggesting the worst might be over.

Hedge Funds Are Buying The Dip

While retail investors hit the sell button, hedge funds are quietly accumulating. The 13F filings show 478 funds now hold Reddit stock — a 69% jump from the prior quarter — with major players like Tiger Global, Renaissance Technologies and Citadel Advisors boosting their stakes.

Notably, call options owned by hedge funds surged by over 575% during the fourth quarter of 2024, signaling bullish bets despite the slump. For reference, put option positions taken on Reddit stock by hedge funds went up by just 25% during the fourth quarter.

Reddit Stock Chart Flashes Caution, But Long-Term Support Intact

From a technical standpoint, Reddit stock looks bruised.

Chart created using Benzinga Pro

Reddit stock is trading below its eight-, 20- and 50-day simple moving averages, while RSI (relative strength index) sits at a bearish 31.51. The MACD (moving average convergence/divergence) is bearish too, at a negative 3.94.

Yet, the 200-day moving average at $103.75 suggests long-term support remains intact.

What's Next For Reddit Investors?

Looking ahead, Reddit's international expansion, adtech innovations and lucrative AI data licensing deals — like its partnership with OpenAI — could reignite momentum.

With first-quarter revenue projected to grow nearly 50% and adjusted EBITDA expected to jump 700%-800%, the growth story remains compelling.

Bottom line?

The current dip might be more of a reset than a red flag. For investors with an appetite for volatility, this could be the opening they've been waiting for.

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