Reddit's RDDT Plummets 5.3%: What's Fueling the Selloff?

Summary
• Reddit (RDDT) plunges 5.3% to $216.00, its worst intraday drop since April 2025
• MIT report reveals 95% of businesses see no ROI from AI investments
• Target and Home Depot warn of inflationary pressures, spooking growth stock sentiment
• CEO Steve Huffman sells 65,000 shares, raising insider confidence concerns

Reddit's sharp selloff reflects a perfect storm of macroeconomic fears, AI valuation skepticism, and corporate governance red flags. With the Nasdaq Composite down 1.2% and the S&P 500 at -0.5%, the stock's $205.37 intraday low underscores a broader tech sector correction. This analysis deciphers the catalysts and charts actionable strategies for navigating the volatility.

MIT AI ROI Report and Retail Earnings Trigger Reddit's Sharp Decline
Reddit's 5.3% drop stems from three converging bearish forces. First, a MIT study revealing 95% of businesses derive no ROI from AI investments has triggered a sector-wide reevaluation of AI-driven valuations. Second, inflationary warnings from Target and Home Depot—citing tariff-driven price hikes and weak consumer spending—have amplified fears of delayed Fed rate cuts. Third, CEO Steve Huffman's 65,000-share sale, coupled with CFO Michelle Reynolds' $200k insider divestment, has raised red flags about management's near-term confidence. These factors have created a liquidity vacuum as algorithmic traders and institutional investors simultaneously exit overvalued tech positions.

Social Media Sector Under Pressure as Meta Slides 0.96%
The social media sector is broadly underperforming, with Meta (META) down 0.96% despite its dominant ad revenue position. Reddit's 5.3% decline outpaces the sector's average 1.2% drop, reflecting its higher sensitivity to AI valuation risks. While Meta benefits from its diversified ad tech ecosystem, Reddit's reliance on AI-driven data licensing makes it more vulnerable to the MIT report's findings. The Global X Social Media ETF (SOCL) has fallen 1.27%, mirroring the sector's defensive rotation.

Options and ETFs for Navigating Reddit's Volatility
• MACD: 24.53 (bullish divergence), Signal Line: 21.55, Histogram: 2.98 (momentum waning)
• RSI: 82.10 (overbought), 200D MA: 147.09 (far below current price), Bollinger Bands: 271.06 (upper), 120.86 (lower)
• 200D Support/Resistance: 109.25–112.44 (critical long-term floor)

Reddit's technicals suggest a short-term bearish reversal despite its long-term bullish trend. The RSI at 82.10 indicates overbought conditions, while the MACD histogram's contraction signals fading momentum. For options traders, the RDDT20250829P210 put and RDDT20250829C220 call offer strategic exposure. The put offers 28.42% leverage with 112.39% price change potential, while the call provides 28.20% leverage and -45.84% price change risk. Both contracts exhibit high implied volatility (70.78% and 68.72%) and strong liquidity (turnover of 1.24M and 1.44M).

RDDT20250829P210 (Put):
• Code: RDDT20250829P210
• Strike: $210, Expiry: 8/29
• IV: 70.78% (high volatility), Leverage: 28.42% (high), Delta: -0.395 (moderate bearishness), Theta: -0.0869 (moderate time decay), Gamma: 0.0153 (high sensitivity)
• Projected 5% downside payoff: $10.00 (max profit at $205)
• Ideal for capitalizing on a potential breakdown below $210 support level.

RDDT20250829C220 (Call):
• Code: RDDT20250829C220
• Strike: $220, Expiry: 8/29
• IV: 68.72% (high volatility), Leverage: 28.20% (high), Delta: 0.4446 (moderate bullishness), Theta: -0.8609 (high time decay), Gamma: 0.0162 (high sensitivity)
• Projected 5% downside payoff: $0.00 (no profit)
• Suitable for aggressive bulls expecting a rebound above $220 resistance.

For ETF exposure, the Global X Social Media ETF (SOCL) at $56.73 (-1.27%) offers sector-wide hedging. Aggressive traders may consider shorting SOCL if Reddit's decline continues to lead the sector.

Backtest Reddit Stock Performance
The RDDT strategy demonstrated robust performance following a -5% intraday plunge. The backtest data reveals that the 3-day win rate was 59.04%, the 10-day win rate was 65.66%, and the 30-day win rate was 77.71%. Additionally, the strategy achieved a maximum return of 32.97% over 30 days, with a maximum return day at 59.

Reddit's Volatility Presents Strategic Entry Points: Watch for $210 Support
Reddit's 5.3% selloff has created a critical inflection point. While the MIT AI report and retail sector warnings justify near-term caution, the stock's long-term fundamentals—32% YTD gains and 128% surge in three months—remain intact. Immediate focus should be on the $210 support level, with a breakdown triggering deeper corrections. Conversely, a rebound above $225 could reignite bullish momentum. Investors should monitor Meta (META)'s -0.96% move as a sector barometer. For tactical plays, the RDDT20250829P210 put offers high leverage on a key support level, while the SOCL ETF provides sector hedging. Watch for $210 breakdown or regulatory reaction.