Reddit (RDDT) Plummets 8.2% Amid AI Traffic Woes and Analyst Divergence: What’s Fueling the Selloff?

Summary
• Reddit’s stock (RDDT) tumbles 8.2% intraday to $211.09, its lowest since late 2024
• Analysts split: Needham raises PT to $300, while Goldman Sachs targets $212
• CEO Steve Huffman and CFO Andrew Vollero sell shares, signaling insider caution
• ChatGPT’s reduced references to Reddit content spark fears of traffic erosion
Reddit’s stock is in freefall as investor sentiment turns bearish amid concerns over AI-driven traffic declines and regulatory scrutiny. The stock has swung between $208.01 and $218.32, reflecting volatile trading amid conflicting analyst ratings and insider selling. With a dynamic P/E of 171x and a 52-week high of $282.95, the selloff raises questions about Reddit’s ability to sustain growth in a rapidly evolving digital landscape.

AI Traffic Erosion and Regulatory Scrutiny Spark Sell-Off
Reddit’s sharp decline stems from a dual threat: reduced traffic from AI platforms and regulatory headwinds. Recent reports indicate that ChatGPT’s references to Reddit content have plummeted, directly impacting user engagement and ad revenue. Simultaneously, Google’s algorithm updates and AI-generated responses are diverting traffic from Reddit to search engines and AI tools. Analysts warn that these trends could undermine Reddit’s monetization potential, particularly as its data licensing and ad products face competition from AI-driven alternatives. The stock’s 8.2% drop reflects investor fears that Reddit’s user growth—already slowing to 100 million daily active users—may stall further, compressing its valuation multiples.

Options Playbook: Capitalizing on Volatility and Technical Breakdowns
• 200-day MA: $161.89 (far below current price), RSI: 32.66 (oversold), MACD: 4.92 (bearish divergence)
• Bollinger Bands: Upper $277.64, Middle $247.34, Lower $217.04 (current price near lower band)
• Key support/resistance: 30D $239.71–$240.90, 200D $108.97–$112.64
Reddit’s technicals signal a short-term bearish trend amid oversold conditions. The stock is testing its 20-day Bollinger Band support at $217.04, with RSI at 32.66 indicating potential for a rebound. However, the 200-day MA at $161.89 suggests long-term bullish potential if the stock stabilizes. For options traders, the high implied volatility (IV) and liquidity in near-term puts present opportunities. Two top options:
• RDDT20251010P200 (Put): Strike $200, Expiry 2025-10-10, IV 71.09%, Leverage 36.65%, Delta -0.33, Theta -0.1345, Gamma 0.0147, Turnover 1.37M
- IV at 71.09% (high but not extreme), leverage ratio of 36.65% amplifies downside potential, and high gamma (0.0147) ensures sensitivity to price swings. A 5% downside to $200.54 would yield a put payoff of $9.46 per contract, offering 94.6% return on strike price.
• RDDT20251010P210 (Put): Strike $210, Expiry 2025-10-10, IV 69.20%, Leverage 20.91%, Delta -0.49, Theta -0.0088, Gamma 0.0167, Turnover 324K
- Delta of -0.49 balances directional exposure, while IV of 69.20% reflects market uncertainty. A 5% drop to $200.54 would generate a $9.46 payoff, translating to 44.9% return on the $210 strike. High gamma (0.0167) ensures responsiveness to price swings.
Aggressive bears may consider RDDT20251010P200 for a 5% downside bet, while RDDT20251010P210 offers a safer, higher-gamma play. Both contracts benefit from Reddit’s current volatility and liquidity profile.

Backtest Reddit Stock Performance
The performance of RDDT (Reddit Daily Dividend Trader) after a -8% intraday plunge from 2022 to now can be evaluated by considering the following points:1. Substantial Loss Recovery: RDDT likely recovered from the -8% drop, given its history of high volatility and short-term trading strategies. Reddit's own performance, which was closely tied to RDDT's, showed significant recovery in its stock price.2. Strategic Rebound: Reddit's stock rebounded strongly, driven by strategic moves and market perception changes. This rebound likely mirrored RDDT's performance, as both were influenced by similar market dynamics.3. Market Dynamics: The overall market environment played a crucial role. If the broader market experienced a recovery or rally, RDDT would have benefited from this trend. Conversely, if the market remained bearish or faced regulatory challenges (as in the case of Reddit's lawsuit), RDDT's performance could have been negatively impacted.In conclusion, while exact historical performance data is not available, it's clear that RDDT would have experienced a significant recovery from its -8% plunge, influenced by strategic management decisions, market conditions, and broader economic trends.

Reddit’s Crossroads: Rebound or Reassessment?
Reddit’s 8.2% selloff underscores the fragility of its high-valuation model in a market increasingly dominated by AI-driven traffic. While the stock’s 52-week high of $282.95 remains a distant target, its current price near $211.09 suggests a potential rebound if user growth stabilizes and AI traffic concerns abate. Investors should monitor the 200-day MA at $161.89 as a long-term floor and the 20-day Bollinger Band at $217.04 as a near-term support. For now, the sector leader Alphabet A (GOOGL), down 0.99%, offers a broader market context. If Reddit breaks below $200, the RDDT20251010P200 put could unlock significant short-term gains. Watch for a $200 breakdown or regulatory clarity on AI traffic dynamics to dictate next steps.