Reddit’s recent entry into the stock market has garnered significant attention, with a notable increase in bearish positions against the social media platform during its initial days of trading, according to data from analytics firm Ortex.
As per Ortex’s preliminary estimates, around 7.1% of Reddit’s freely traded shares have been shorted, based on approximately 2.15 million shares on loan.
“This level of short interest is quite elevated for a newly listed stock, signaling pessimism among certain market participants regarding Reddit’s future price trajectory,” remarked Ortex co-founder Peter Hillerberg.
Short sellers employ a strategy wherein they sell borrowed shares intending to repurchase them at a lower price in the future to generate profit.
On Wednesday, Reddit’s stock experienced a 12% decline, closing at $56.91, following two consecutive days of gains since its market debut on March 21, when it closed at $50.44, marking a 48% increase from its IPO price.
The stock has retreated more than 20% from its peak of $74.74 reached on Tuesday.
In the options market, the fervent trading activity observed post-IPO has somewhat subsided as the downward movement in share price prompted traders to dial back on bullish positions.
Some 53,000 Reddit options contracts were traded by 1:30 p.m. ET (1730 GMT), according to Trade Alert data, with the prevailing sentiment favoring bearish positions. The day’s total volume was anticipated to reach 82,000 contracts, a decrease from the 131,000 contracts traded on Tuesday.
