Reddit Stock Faces Heavy Short Selling After Market Debut
Reddit's (NYSE:RDDT) recent entry into the stock market has quickly attracted significant short selling interest, according to Ortex analytics. In just a few days post-IPO, a considerable portion of the company's shares has been targeted by bearish investors.
An Ortex preliminary estimate reveals that about 2.15 million Reddit shares are currently out on loan, with at least 7.1% of the company's free share float being sold short. This high level of short selling so early in the stock's trading life suggests a pessimistic outlook on Reddit's future share price among some investors.
Short sellers, who aim to profit from a decline in share prices by selling borrowed shares and repurchasing them at a lower price, have seen an opportunity with Reddit's shares. Following a strong start, Reddit's shares took a downturn, falling 12% to $56.91 on Wednesday, thus ending a two-day gain streak. The shares had initially closed at $50.44 on their debut day, March 21, marking a 48% increase from the IPO price. However, the stock has since dropped over 20% from its peak of $74.74 on Tuesday.
The enthusiasm in the options market has also seen a decrease as Reddit's share price retreated. Trading activity has moderated, with around 53,000 Reddit options contracts traded by midday, leaning towards bearish positions. This is a significant drop from the 131,000 contracts traded the previous day, indicating a cooling off from the initial post-IPO frenzy.
This article first appeared on GuruFocus.
