Reddit isn’t your typical social media play anymore. It’s morphing into an AI-powered advertising juggernaut with actual profits, boasting 78% YoY revenue growth, 33% EBITDA margins, and a 96 Relative Strength Rating that screams institutional quality wrapped in meme-stock clothing. With the stock riding above all major moving averages and smart money deploying sophisticated collar strategies, the options market is serving up a full menu of strategies: from cash-secured puts for accumulation on dips to zero-cost collars for hedging existing gains to diagonal spreads for trend-riding with theta decay, and beyond.
Reality Check: The Valuation Elephant in the Room
Let’s cut through the hype: Reddit is currently trading around $240 with a market cap of approximately $46 billion, sporting a P/E ratio between 94-330 depending on the metric used. To put that in perspective:
- Meta (META): P/E of 28.4, trading at 22.8x 2025 earnings estimates
- Pinterest (PINS): Forward P/E of 23.4x
- Snap (SNAP): Forward P/E of 50.6x (24.6x 2025 estimates)
- Reddit (RDDT): P/E of 198-299, forward P/E of 120-154
Translation: Reddit is priced like it’s already conquered the internet twice over. At 24.2x price-to-sales versus a 3.1x peer average, this stock is expensive by any measure.
But here’s the thing about expensive stocks: they can get more expensive if the story delivers. The question is: does Reddit’s narrative justify paying 5-10x what you’d pay for Meta?
The Bull Case: Why Smart Money Might Be Right
Revenue Acceleration Is Real
With Q2 2025 revenue jumping 78% to $500M and 33% EBITDA margins, Reddit isn’t just growing, it’s scaling profitably. The stock hit an all-time high of $248.02 on August 15, 2025, up from a low of $37.35 in April 2024. That’s a 564% move in 16 months.
The AI Multiplier Effect Nobody Saw Coming
Reddit Answers went from 1M to 6M weekly users in one quarter. When it gets embedded into the main search bar later this year, Reddit becomes a legitimate Google alternative with built-in monetization. That’s potentially transformational.
International Is Still Untapped
Unlike Meta’s global saturation, Reddit’s revenue is heavily North America-focused. The international opportunity represents massive untapped monetization potential.
The Bear Case: Why Valuation Skeptics Have a Point
The Math Is Brutal
Independent analysts value RDDT’s intrinsic worth at $50.36, making it 75% overvalued at current levels. Wall Street’s average price target is $174.67, representing a 27% downside from current levels.
User Growth Volatility
Reddit’s historic challenge has been consistent user engagement. One bad quarter of DAU trends could trigger a massive multiple compression.
Competition Reality
Reddit may be unique, but it’s still competing for attention with TikTok, Instagram, and YouTube. The AI-driven content game is getting crowded fast.
Options Strategy Reality Check: What Actually Makes Sense
Given the valuation extreme, traditional bullish strategies carry significant risk. Here’s what the options market is actually telling us:
Strategy 1: “The Rich Person’s Hedge” (For Existing Holders Only)
Structure: Collar with generous strikes
Setup: Own shares + Sell $300 calls + Buy $150 puts (Jan 2026)
Rationale: If you’re sitting on massive RDDT gains, this caps upside at “only” 42% while protecting 29% of downside
Reality check: This only makes sense if you already own shares from much lower levels. Don’t buy shares just to collar them at these prices.
Strategy 2: “The Pullback Vulture” (Opportunistic)
Structure: Cash-secured put writing on major dips
Setup: Sell puts only when RDDT drops 15%+ from highs
Target strikes: Look for technical support around $180-190 levels
Why it works: Even overvalued stocks can become reasonable investments after significant corrections. This strategy positions you to buy only after the market provides a discount.
Critical rule: Never write puts at current price levels. Wait for fear.
Strategy 3: “The Volatility Reality Play” (Advanced)
Structure: Short strangles on earnings, wide strikes
Setup: Sell far OTM calls and puts around earnings
Rationale: High IV often overprices the actual moves, even for volatile stocks
Risk management: Only for experienced traders with strong position sizing discipline. Reddit can move 20%+ on earnings surprises.
Strategy 4: “The Catalyst Calendar” (Complex)
Structure: Ratio spreads around product launches
Setup: Buy longer-dated calls, sell 2-3x short-dated calls at higher strikes
Target: Position for 2026 search advertising catalyst while collecting premium
The twist: Structure this as a ratio to benefit from time decay if the stock trades sideways while waiting for catalysts.
What We’re NOT Recommending
Avoid these strategies at current valuations:
- Naked long calls: You’re paying premium for an already extended stock
- Bull call spreads: Limited upside, significant risk if valuation corrects
- Cash-secured puts at current levels: You could end up owning an expensive stock
- Any strategy betting on continued parabolic moves: Trees don’t grow to the sky
The Money Reality
Look, Reddit’s fundamentals are genuinely impressive. But at these prices, you’re not investing, you’re speculating that an already-expensive stock can become even more expensive. That’s a valid trade, but call it what it is.
Our framework:
- If you own it: Use collars to protect gains while maintaining some upside
- If you want exposure: Wait for a 20%+ pullback before considering entry
- If you’re options-focused: Play volatility, not direction, until valuation becomes reasonable
Position Sizing Rules
- Maximum allocation: 2-3% of portfolio (this is speculation, not investment)
- Options exposure: Never risk more than 1% of portfolio on any single Reddit options trade
- Technical stops: If price breaks $180 on volume, the growth story may be stalling
Bottom Line: Respect the Market, Respect the Risk
Reddit represents everything exciting about modern growth investing – and everything dangerous about valuation disconnected from fundamentals. At a $46 billion market cap for a company that just hit $500M quarterly revenue, you’re paying for perfection.
The options strategies that make sense here are defensive (collars for existing holders), opportunistic (puts on pullbacks), or volatility-focused (premium selling). The strategies that don’t make sense are the ones that bet on continued parabolic moves from already-extended levels.
Reddit might be the future of social media monetization. But at these prices, that future better arrive faster and bigger than anyone currently expects. In options terms, that’s called “paying for a miracle”, and the house usually wins those bets.
Trade accordingly.
This analysis is for educational purposes only and not personalized investment advice. Options trading involves substantial risk and may not be suitable for all investors.