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Short squeeze alert for Reddit stock

Short squeeze alert for Reddit stock
Elmaz Sabovic

Since its IPO nearly two months ago, Reddit (NYSE: RDDT) has been a rollercoaster ride for investors

RDDT shares, initially priced at $47, have seen a period of heightened volatility, pushing the valuation to $56.38 in the latest trading session, a significant gain of 11.78%. 

However, yesterday, OpenAI and Reddit agreed to a deal to bring Reddit content to ChatGPT. This news was well received by the stock market, as RDDT shares added 12.63% in the premarket, propelling the valuation to $63.50, just a few dollars from the previous all-time high.

RDDT stock 24-hour price chart. Source: Google Finance
RDDT stock 24-hour price chart. Source: Google Finance

Now, the question of whether RDDT stock is primed for a short squeeze arises.

There are indications that RDDT stock is being shorted

With a short interest percentage of a float being 13.16% or 4.2 million shares, the data says that RDDT stock is experiencing a high level of short-seller activity, with most of the shorts being one-day call options with 0.81 days to cover.

RDDT stock short interest. Source: Fintel
RDDT stock short interest. Source: Fintel

This wouldn’t be the first time the RDDT stock has faced heightened short-interest activity, but due to premarket gains, it is primed to cause millions in losses to short-sellers.

Short-sellers targeted RDDT stock shortly after the IPO

Reddit’s recent entry into the stock market quickly attracted significant short-selling interest, and just a few days after the IPO, bearish investors targeted a considerable portion of the company’s shares.

A preliminary estimate revealed that about 2.15 million Reddit shares were 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 suggested a pessimistic outlook on Reddit’s future share price among some investors.

However, RDDT stock managed to pull through, and based on previous performance, it will do so again.

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