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Reddit Options Launch Attracts Bulls as Stocks Extend Gains

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NEW YORK: Options on Reddit sparked a flurry of bullish bets on Monday, as shares of the social media platform rose 16 percent after their strong market debut last week.

Shares of Reddit soared 48 percent on the New York Stock Exchange when the company went public on Thursday, despite not posting an annual profit since its launch in 2005.

Reddit was among the biggest gainers on the New York Stock Exchange on Monday, with the stock up 15 percent to $53.01 by early afternoon.

Some 39,000 options were traded as of 1:10 p.m. (5:10 p.m. GMT), with volume on track to reach 62,000 contracts by the end of the day, according to Trade Alert data.

Facebook Inc’s 2012 options listing, now known as Meta Platforms, holds the record for the most active early options market, with some 360,000 contracts changing hands on the first day of trading.

Reddit options buyers shifted to bullish bets, analysts said.

“The action is on the buy side and concentrated around the upside,” said Ophir Gottlieb, managing director at Los Angeles-based Capital Market Laboratories. “With stock prices rising from day one, it looks like speculation on higher moves.”

April call options with strike prices of $50 to $75 were among the most actively traded Reddit contracts. Among put options, contracts preventing a drop below $25 by mid-April were the most traded.

Calls provide the right to buy shares at a fixed price in the future, while puts provide the right to sell them at a fixed price.

“Trading on Reddit reminds me of meme stocks,” said Matt Amberson, founder of options analysis service ORATS, referring to stocks with viral popularity among individual investors who often use options to express their opinions.

“Retail is in the driver’s seat and buying calls to the moon,” Amberson said.

Meme stocks emerged in 2020, led by GameStop whose price rose as much as 100 times over several months in 2021, largely driven by sentiment from individual buyers connected through the Reddit community forum WallStreetBets.

Commenters on Reddit’s biggest stock trading forums expressed skepticism about the long-term prospects of the loss-making company’s stock.

“Considering that Reddit can serve as a forum for speculation by individual investors, it is not surprising that we are seeing massive buying of short-term bull options,” said Steve Sosnick, chief strategist at Interactive Brokers.

“The fact that we are seeing so much activity in out-of-the-money options – in both directions – tells me that speculators are driving the trading today,” he said.

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