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Reddit options launch draws bulls, as shares soar

FILE PHOTO: Reddit IPO at the NYSE in New York

By Saqib Iqbal Ahmed

NEW YORK (Reuters) -The launch of options on Reddit on Monday drew a flurry of bullish bets that some analysts said helped boost the social media platform's stock after last week's strong market debut.

Reddit shares soared 48% on the New York Stock Exchange as the company went public on Thursday, despite posting no annual profit since its launch in 2005.

Reddit was the top percentage gainer on the New York Stock Exchange on Monday, finishing up 30% at $59.80.

Some 90,000 Reddit options changed hands, with trades leaning toward bullish bets, analysts said.

"The action is on the call side and collected around the upside," said Ophir Gottlieb, chief executive of Los Angeles-based Capital Market Laboratories. "With the stock trading higher on Day One, this feels like speculation for higher moves."

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April call options with strike prices of $50 to $75 were among the most actively traded Reddit contracts. Among puts, contracts guarding against a drop below $25 by mid-April were the most traded.

Calls convey the right to buy shares at a fixed price in the future, while puts offer the right to sell them at a set price.

The bullish options activity could have been a factor in Monday's stock rally, some analysts said.

"It's always a bit of a chicken and egg discussion when it comes to active options and an active underlying stock," said Steve Sosnick, chief strategist at Interactive Brokers.

"I think the options action is having an impact on today's price movement."

When options traders buy calls, dealers who sell them are exposed to the risk of the underlying stock rallying above the contract price for future sales. As a hedge, dealers tend to buy the stock as it advances, adding more fuel to the rally.

Experts have previously linked dramatic price movements in virally popular meme stocks, including AMC Entertainment, to an options dynamic called a "gamma squeeze" in industry parlance.

"As the stock goes up, market makers need to buy more," said Matt Amberson, founder of options analytics service ORATS.

He said Monday's Reddit options activity recalled the trading of meme stocks touted by individual investors who often use options to express their views.

Meme stocks emerged in 2020, led by GameStop whose price rose as much as 100 times over several months in 2021, largely on the sentiment of individual buyers connected through the Reddit community forum WallStreetBets.

Capital Market Laboratories' Gottlieb, however, said a direct connection was unlikely in Monday's activity.

The 2012 listing of options on Facebook Inc, now known as Meta Platforms, holds the record for the most active options market debut with some 360,000 contracts changing hands on the first day of trading.

(Reporting by Saqib Iqbal Ahmed; Editing by Megan Davies and Richard Chang)