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By Ainvest in options-flow —

RDDT Diagonal Call Spread - $10M Earnings Week Play

$10M institutional order just hit RDDT options tape. Unusual activity detected at 2512x normal volume. Complete trade breakdown, gamma analysis, and three actionable strategies inside.

October 28, 2025 | Unusual Activity Detected

The Quick Take

Someone just executed a $10M diagonal call spread on Reddit ahead of Wednesday's earnings! This sophisticated institutional play involves buying long-dated $230 calls while selling near-term $220 calls, positioning for a move above $220 after earnings but maintaining long-term upside exposure through January 2026. With Q3 earnings dropping October 30th and the stock trading at $216.04, this is a calculated bet on earnings-driven volatility. Translation: Smart money expects RDDT to break above $220 post-earnings, then continue higher into 2026!

📊 Company Overview

Reddit, Inc. (RDDT) is a social media platform where users engage in conversations and create communities centered around their interests, featuring:
- Market Cap: $41.03 Billion
- Industry: Computer Processing & Data Preparation Services
- Primary Business: Community-driven social platform with 110M+ daily active users generating revenue through advertising (93%) and AI data licensing (7%)
- Public Since: March 2024 IPO

💰 The Option Flow Breakdown

The Tape (October 28, 2025 @ 12:18:24):

Time Symbol Side Buy/Sell Type Expiration Premium Strike Volume OI Size Spot Option Price
12:18:24 RDDT MID BUY CALL 2026-01-16 $10M $230 4K 1.1K 4,000 $216.04 $25.91
12:18:24 RDDT MID SELL CALL 2025-11-21 $7.8M $220 4.1K 8.5K 4,000 $216.04 $19.51

Net Cost: $6.40 per contract = $2.56M net debit ($25.91 - $19.51 = $6.40 × 4,000 contracts × 100 shares)

🤓 What This Actually Means

This is a diagonal call spread (aka calendar spread with different strikes) - a sophisticated strategy combining income generation with directional positioning! The trader:

  • Buys 4,000 contracts of January 16, 2026 $230 calls for $10M total
  • Sells 4,000 contracts of November 21, 2025 $220 calls for $7.8M total
  • Collects $7.8M premium upfront, reducing the cost basis to just $2.56M
  • Profits if RDDT moves to $220-$240 range by November 21st
  • Maintains unlimited upside exposure through January 2026 after short calls expire

The Genius of This Setup:
The trader is essentially getting paid $7.8M to hold January $230 calls that cost $10M! If RDDT rallies to $220-$230 by November 21st, the short calls expire worthless or at max value, and they still own long-dated calls for Q4 earnings and potential S&P 500 inclusion in 2026.

Unusual Score: 🔥 EXTREME (9.0/10) - 2,512x average size! This is unprecedented activity that happens maybe once a year! With a z-score of 92.28 and only 2 larger trades in the past 30 days, this represents institutional positioning of the highest order.

📈 Technical Setup / Chart Check-Up

YTD Performance Chart

RDDT ytd chart

Reddit has been an absolute rocket ship since its IPO! The stock is up 163% year-over-year, though currently trading about 24% below its 52-week high of $282.95 reached in August.

Key observations:
- IPO to Stratosphere: From March 2024 IPO price of ~$47 to highs of $283, representing a 6x return
- Pullback Phase: Down from August highs, creating potential re-entry opportunity
- Support Holding: Maintaining levels above $200, forming a higher low pattern
- Volume Profile: Consistent institutional interest with elevated volume during earnings periods

The current consolidation around $216 appears to be building energy for the next leg, with earnings as the likely catalyst.

Gamma-Based Support & Resistance Analysis

RDDT gamma sr

Current Price: $214.89

The gamma exposure reveals critical levels that perfectly explain this trade's strike selection:

Resistance Levels (Call Gamma):
- $215 (Immediate): Net GEX 0.26B - Minor resistance at current price
- $220 (Key Level): Net GEX 2.98B - MASSIVE wall representing the short call strike
- $225: Net GEX 0.68B - Secondary resistance
- $230 (Target): Net GEX 1.10B - Long call strike showing significant interest
- $240: Net GEX 0.83B - Upper range target
- $250 (Major): Net GEX 1.89B - Maximum upside target

Support Levels (Put Gamma):
- $210: Net GEX 0.92B - Strongest near-term support with balanced put/call interest
- $200: Net GEX 0.08B - Psychological and technical support
- $195: Net GEX 0.40B - Secondary floor
- $180: Net GEX -0.01B - Major support if breakdown occurs

Gamma Summary:
- Total Call GEX: 22.69B (Bullish positioning dominant)
- Total Put GEX: 10.24B
- Net GEX Bias: Bullish (2.2x more call gamma than put gamma)

This gamma structure shows market makers are massively short call gamma above $220, meaning they'll need to buy stock as price rises, creating positive feedback loops. The trader's short $220 calls and long $230 calls straddle the zone of maximum dealer hedging pressure!

Implied Move-Based Support & Resistance

RDDT implied move

Current Price: $214.66

Options are pricing in significant volatility across all timeframes:

Weekly (Oct 31, 2025 - 3 days):
- Implied Move: ±12.54% ($26.92)
- Upper Range: $241.58
- Lower Range: $187.74
- Translation: Market expects a $27 move by Friday's close (earnings Wednesday!)

Monthly OPEX (Nov 21, 2025 - 24 days):
- Implied Move: ±16.81% ($36.08)
- Upper Range: $250.74 (above the long $230 call strike!)
- Lower Range: $178.58
- This aligns perfectly with the diagonal spread timeframe

Quarterly Triple Witch (Dec 19, 2025 - 52 days):
- Implied Move: ±20.53% ($44.07)
- Upper Range: $258.73
- Lower Range: $170.59

Yearly LEAPS (Sep 18, 2026 - 325 days):
- Implied Move: ±44.83% ($96.24)
- Upper Range: $310.90
- Lower Range: $118.42

Key Insight: The weekly implied move of $241.58 exceeds the short $220 call strike by $21.58, suggesting the market is pricing in a significant earnings beat that could blow through the short calls. However, the monthly upper range of $250.74 sits perfectly between the $230 and $240 strikes, making this diagonal spread an optimal risk/reward structure.

🎪 Catalysts

Upcoming Events (The Big Ones)

Q3 2025 Earnings - October 30, 2025 (After Market Close) 📊

This is the immediate catalyst driving the options activity! Wall Street expects:

Why This Could Crush Estimates:
Reddit has beaten estimates in all four trailing quarters with an average earnings surprise of 261.89%. The company's track record of conservative guidance and significant outperformance makes this a high-probability beat scenario.

International Expansion Acceleration 🌍

Reddit's biggest growth driver is going global:

AI Data Licensing Goldmine 🤖

Reddit is positioned as the premier training data source for LLMs:

Potential S&P 500 Inclusion (2026) 📈

Reddit may qualify for the S&P 500 in late 2025 or early 2026:

The January 2026 long calls capture this potential catalyst perfectly!

Advertising Product Innovation 📱

Reddit is rapidly closing the ad tech gap with Meta and Google:

Search as a Growth Driver 🔍

Reddit is positioning itself as a premier search destination:

Revenue Diversification 💵

New revenue streams launching in 2025-2026:

Recently Completed (Building Momentum)

Q2 2025 Earnings Beat (July 2025)

Reddit absolutely crushed Q2 expectations, setting the stage for Q3:

Competitive Position Strengthening

Reddit occupies a unique niche in social media:

🎯 Price Targets & Probabilities

Using gamma levels, implied moves, and catalyst timing:

Bull Case (35% probability) 🚀

Target: $240-$260 by January 2026

What needs to happen:
- Earnings beat on revenue and user growth (high probability given track record)
- Q4 guidance raises to $600M+ revenue
- International ARPU shows improvement toward $3+ (vs current $1.73)
- AI data licensing announces new major partnership or pricing increase
- S&P 500 inclusion timeline becomes clearer

Trade Impact:
- Short $220 calls get assigned in November (max loss on that leg)
- Long $230 calls gain significant value
- Net profit potential: $500K - $3M depending on timing and IV compression

Why this could happen:
Reddit's international expansion is accelerating faster than expected, and the company has a consistent pattern of beating estimates by 260%+. The 60M international DAUs growing 32% YoY provides multiple paths to upside surprise.

Base Case (45% probability) ⚖️

Target: $220-$240 range through January

What needs to happen:
- Solid earnings beat but in-line guidance
- International growth continues but ARPU improvement is gradual
- AI licensing revenue meets expectations without major surprises
- Stock consolidates gains, building base for 2026 catalysts

Trade Impact:
- PERFECT scenario for this spread!
- Short $220 calls expire worthless or with minimal loss
- Long $230 calls retain time value and benefit from any upward drift
- Estimated P&L: $1M - $2M profit

Why this is likely:
The gamma resistance at $220 combined with the implied move upper range of $241 suggests the market is pricing in exactly this scenario. Wall Street consensus of $237.87 average price target sits right in this range.

Bear Case (20% probability) 📉

Target: $180-$210

What needs to happen:
- Earnings miss or weak guidance
- User growth slowdown concerns (unlikely but possible)
- Macro headwinds impact digital ad spending
- Legal issues around data scraping escalate
- Premium valuation of 15.46x P/S becomes untenable

Trade Impact:
- Both call positions lose value
- Maximum loss: $2.56M net debit (the amount paid for the spread)
- Short $220 calls expire worthless (keep the $7.8M premium)
- Long $230 calls lose significant value but retain some time premium

Why this is unlikely:
Reddit has beaten estimates in every quarter since IPO, international expansion is accelerating with 60M international DAUs growing 32% YoY, and AI data licensing provides a high-margin safety net. The gamma support at $210 also provides a technical floor.

💡 Trading Ideas

🛡️ Conservative: Ride the Earnings Coat-Tails

Play: Buy ATM calls for earnings, sell immediately after

Specific Trade:
- Buy November 21st $220 calls at ~$20
- Target: Sell on November 1st if stock gaps to $230+ post-earnings
- Stop loss: Exit if stock drops below $210 pre-earnings

Risk: $2,000 per contract (1 contract = $2,000)
Reward: $3,000-$5,000 if 10-15% gap up

Why this works:
Captures the immediate earnings volatility without long-term risk. Reddit's history of beating by 260% makes an earnings pop likely. The weekly implied move of ±12.54% suggests a move to $241 is priced in.

Position Sizing: Risk only 1-2% of portfolio on this speculative play.

⚖️ Balanced: The Poor Man's Diagonal Spread

Play: Replicate the institutional trade at smaller scale

Specific Trade:
- Buy 10 contracts January 2026 $230 calls at $26 = $26,000
- Sell 10 contracts November 21st $220 calls at $19.50 = $19,500
- Net debit: $6,500

Risk: $6,500 maximum loss
Reward:
- If stock at $230-$235 on Nov 21: Profit ~$3,000-$5,000
- If stock at $250+ by January: Profit $10,000-$15,000+

Why this works:
Same structure as the $10M institutional trade, just scaled down. You collect $19,500 premium to offset the cost of long-dated calls. If RDDT hits the sweet spot around $230 by November, both positions profit. You maintain unlimited upside through January for potential S&P 500 inclusion catalyst.

Position Sizing: Allocate 5-10% of options trading capital.

🚀 Aggressive: Earnings Lottery Ticket

Play: Buy near-term OTM calls for maximum leverage

Specific Trade:
- Buy November 1st (weekly) $230 calls at ~$3-5
- Target: 300-500% return if massive earnings beat
- Exit: Day after earnings regardless of outcome

Risk: $300-500 per contract (total loss likely)
Reward: $1,500-$2,500 if stock gaps to $250+

Why this works (or doesn't):
This is essentially a binary bet on a significant earnings beat causing an immediate gap to $230+. The weekly implied move upper range of $241.58 suggests this is within the realm of possibility. Reddit's history of 78% revenue growth and consistent beats makes this less of a lottery ticket than it appears.

⚠️ WARNING: This is high-risk speculation! Only trade with money you can afford to lose completely. Expected value is likely negative despite potential for big wins.

Position Sizing: Risk no more than 0.5-1% of portfolio. This is pure speculation.

⚠️ Risk Factors

Let's be real about what could go wrong:

Premium Valuation Multiple 📊
- Trading at 15.46x forward Price/Sales vs industry average of 5.63x (2.7x premium)
- If growth slows or macro deteriorates, multiple compression could drive 20-30% downside
- Stock-based compensation at 24% of revenue creates dilution headwind

Google Dependency Risk 🔍
- Up to 50% of traffic depends on Google Search algorithm
- Any change in Google's algorithm could devastate traffic overnight
- Concentration risk in traffic sources

Advertising Technology Gap 💻
- Reddit captures only 1.1% of U.S. social ad spend vs Meta's 70%+
- Ad tech lags Meta and Alphabet significantly in measurement and targeting
- Requires continued investment to remain competitive

Legal and Regulatory Battles ⚖️
- Legal concerns over data scraping could set bad precedent
- AI licensing agreements may face regulatory scrutiny
- User privacy concerns could limit data monetization

Macro Headwinds 🌪️
- Digital ad spending highly cyclical and sensitive to recession fears
- Tariff impacts on discretionary spending could hurt Q4 guidance
- Competition from TikTok, Meta, and emerging platforms intensifying

Options-Specific Risks 📉
- IV Crush Post-Earnings: Implied volatility will collapse after earnings, potentially wiping out time value even if directionally correct
- Pin Risk on Short Calls: If stock settles exactly at $220 on November 21, assignment becomes messy
- Gamma Exposure: As short calls go ITM, negative gamma creates accelerating losses
- Time Decay: Both positions subject to theta decay, but short calls benefit while long calls hurt

Early Assignment Risk 🚨
If RDDT pays a surprise dividend or gaps significantly above $220, short calls could be assigned early, forcing position closure before expiration.

🎯 The Bottom Line

Real talk: This $10M diagonal call spread is one of the smartest institutional trades we've seen this year. The setup is brilliant - collect $7.8M selling near-term $220 calls while maintaining January 2026 upside exposure through long $230 calls. It's essentially betting on controlled upside through November, then unlimited gains through January.

The timing is perfect: Two days before earnings when IV is sky-high (maximizing premium collected on short calls), with the long calls positioned to capture:
- Q4 2025 earnings (February 2026)
- Potential S&P 500 inclusion announcement
- Continued international expansion results
- AI data licensing expansion

If you own RDDT: Consider selling covered calls at $220-$230 strikes to generate income. The gamma resistance at $220 makes it a logical profit-taking level. If you believe in the long-term story, hold through volatility.

If you're watching: Wednesday's earnings will set the tone. A beat (likely given the 260% average surprise rate) should drive the stock toward $230-240. The institutional positioning via this diagonal spread suggests sophisticated money believes in the upside case but wants to collect premium while waiting.

If you're bullish: The poor man's version of this trade (10 contracts instead of 4,000) offers similar risk/reward at smaller scale. Alternatively, simple January $230 calls at $26 provide clean exposure without complexity.

If you're bearish: This isn't the setup to fade. When you see 2,512x average size on a sophisticated spread ahead of earnings, that's typically smart money - not dumb money. If you must short, wait until after earnings IV crush.

Mark your calendar:
- October 30 (Wednesday): Q3 earnings after close - The catalyst for immediate moves
- November 21: Short call expiration - Key decision point for the spread
- January 16, 2026: Long call expiration - Captures Q4 earnings and S&P 500 decision

The key question: Will Reddit's international expansion and AI licensing justify the premium valuation? With 60M international DAUs growing 32% YoY and a 4.5x ARPU opportunity, the math says yes. This diagonal spread is positioned perfectly to profit from that narrative while limiting risk if it doesn't materialize.

Disclaimer: Options trading involves substantial risk of loss. This analysis is for educational purposes only and not financial advice. Past performance doesn't guarantee future results. The unusual activity described represents one trader's position and may not reflect all market participants' views. Always consult with a financial advisor and never trade with money you cannot afford to lose.

About Reddit: Reddit is a community-driven social media platform with 110M+ daily active users, generating revenue through digital advertising and AI data licensing. With a $41B market cap in the computer processing & data preparation services sector, Reddit went public in March 2024 and has quickly established itself as a critical player in the AI training data economy.

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