By Stock Psycho – October 30, 2025

Every now and then, a company stops being a story and starts being a signal. That’s what just happened with Reddit (RDDT).

After a monster Q2 that sent the stock from $149 to $245 in two weeks, Wall Street assumed the magic was priced in. Then came Q3 — and Reddit dropped an earnings print so powerful it rewrote the valuation math.

##### The Setup: A Perfect Gamma Storm

In the days before earnings, Reddit’s options chain turned into a powder keg. Call buyers piled into strikes between $200 and $230, betting on a blowout quarter.

Market makers — the liquidity providers who sell those options — must stay delta-neutral. To offset the risk of those calls, they buy shares of Reddit stock.

Delta Hedging Explained: This defensive buying by market makers to neutralize their risk is what causes a Gamma Squeeze. Every call purchased forced market makers to add real shares to their books, amplifying upside momentum. That’s why RDDT climbed nearly 15% in the days leading up to earnings.

##### The Earnings Beat & Financial Results

Then came the earnings beat:

  • Revenue: $585 Million (+68% YoY)
  • Diluted EPS: $0.80
  • Net Income: $163 Million (28% margin)
  • Q4 Guidance: $655–665 Million (Forecast)

A fundamental masterpiece. RDDT spiked to $230 (+17%) at the open — and that’s where the illusion began to crack.

##### The IV Crush: When Good News Meets Math

Implied volatility (IV) is what makes options expensive before earnings. After earnings, when uncertainty disappears, IV collapses. That collapse is called the IV crush, and it vaporizes the theoretical value of those calls almost instantly.

IV Crush & Hedging Unwind: When options lose value, market makers no longer need to hedge them. So they do the rational thing — they sell the shares they bought earlier. This wave of share selling doesn’t reflect sentiment; it reflects risk math. It’s the hedging unwind — the invisible algorithm that makes every “morning pop, afternoon fade” feel like déjà vu.

##### The Friday Effect: When Options Expire

Most of Reddit’s near-term call options expired the Friday after earnings. That’s important, because until they expire, hedgers must keep adjusting.

Once those contracts roll off:

  • The forced selling pressure ends.
  • The float resets.
  • Momentum can resume based on fundamentals instead of derivatives flow.

This is why sharp post-earnings fades often reverse the following week. The gamma unwind cuts both ways.

##### The Psychology: Retail vs. Mechanics

Retail traders see manipulation. Quants see gamma decay. The truth: it’s both predictable and unavoidable.

When tens of thousands of short-dated calls expire worthless, it doesn’t mean “weak hands sold.” It means the market simply rebalanced the leverage that got it there.

That’s why stocks like Reddit can print record earnings, show perfect guidance, and still trade red intraday. Not because they failed. Because they succeeded so hard, the options machine had to reboot.

##### The Stock Psycho Take

The post-earnings dip wasn’t bearish — it was mechanical gravity.

Once the IV crush clears and the hedging flow resets, Reddit’s fundamentals take the driver’s seat again. Those are not numbers that stay undervalued for long:

  • EPS run-rate: $3.20/share (Q3 Diluted EPS of $0.80 annualized)
  • Net margin: 27.8%
  • YoY revenue growth: 68%
  • DAUq: 116M (+19% YoY)

If the options fog lifts and institutions step in Monday, RDDT could easily retrace back toward $250+ on fundamentals alone.

In short: Reddit didn’t stumble — the options market exhaled. And once the hedging smoke clears, fundamentals have a way of rewriting the chart all over again.

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Sources: Reddit Inc. Q3 2025 Earnings Press Release; OCC data; Stock Psycho analysis.

Informational only. Not investment advice. Do your own research.