RDDT has reached my original take-profit area only four days after I opened the trade, but the investment picture has changed enough since Monday that I am not closing the entire position.
Hello everyone. I opened this trade on Monday, August 10, buying 100 shares of RDDT at a cost basis of $160.54 as a tactical position trade based on the technical setup I had been monitoring.
Today, Friday, August 14, RDDT has already traded as high as roughly $184, putting the stock into the take-profit zone I established when I entered.
That is a significant move in a very short amount of time.
At around $180, the position is sitting on approximately a 12% gain in only four days. When a swing trade gives me that kind of move that quickly and reaches the area I originally identified for taking profit, I am going to respect it.
Normally, that would make this a fairly simple decision.
This time, something important has changed.
After Thursday’s close, S&P Dow Jones Indices announced that Reddit will officially be added to the S&P 500 before trading begins Tuesday, August 18.
That is a significant development for RDDT and something that was not part of the equation when I bought the stock Monday.
J.P. Morgan estimates that funds tracking the S&P 500 could need to purchase approximately 16.7 million RDDT shares, compared with average daily trading volume of roughly 6 million shares.
That helps explain the powerful move we are seeing today and introduces a new source of institutional demand that simply did not exist in my original trade thesis.
It does not eliminate risk, but it changes how I want to manage the position.
The underlying business was already producing strong numbers before today’s announcement.
Reddit reported second-quarter revenue of $805 million, up 61% year over year, while Daily Active Uniques increased 18% and Weekly Active Uniques increased 24%. Net income reached $253 million and adjusted EBITDA increased 106% to $343 million.
The concern following earnings was primarily around uneven search-engine traffic and slower U.S. user growth, not a collapse in revenue growth or profitability.
Now Reddit is adding S&P 500 membership on top of that operating performance.
That materially changes the longer-term picture compared with what I was looking at when I entered Monday, and it makes me more interested in maintaining some exposure instead of treating this strictly as a short-term position trade.
I am taking profit on 50 of my 100 shares here and keeping the remaining 50 shares as a longer-term position.
The speed of this move is part of the reason.
I entered Monday at $160.54, and by Friday the stock had already reached my planned take-profit area. I don’t need to squeeze every possible dollar out of a trade that has already delivered roughly 12% in four days.
Taking half off allows me to recognize what has been an excellent short-term trade while still participating if the new fundamental catalyst carries RDDT substantially higher over time.
At roughly $180, selling 50 shares would lock in approximately $976 in profit on that half of the position before any difference in execution price.
The remaining 50 shares stay in the portfolio with my original $160.54 cost basis.
The S&P 500 announcement is significant, but I don’t want a positive headline to become an excuse to abandon the discipline behind the original trade.
RDDT did exactly what I wanted it to do.
I established an entry.
I established a target.
And only four days later, the stock reached it.
When the market hands me that kind of move that quickly, taking some money off the table is the responsible decision.
RDDT is also up sharply today and has made a fast move directly into an important technical area. Stocks can continue higher after S&P 500 inclusion announcements, but they can also cool off after the initial wave of buying and excitement.
By taking 50% here, I don’t have to guess what happens next.
I’ve already been paid for the trade.
The remaining position now gets treated differently.
I’m no longer managing those 50 shares around the original short-term target. They are becoming a longer-term position based on a fundamental and institutional picture that has changed considerably since Monday.
I want to see whether RDDT can build on today’s move, absorb the S&P 500 buying, and establish itself above the major moving averages rather than simply spike through them.
Today’s chart is encouraging. Price has pushed back above the 50-day moving average, momentum has improved considerably, RSI has climbed back into a healthy area without becoming excessively overbought, and the stock is challenging the major resistance area that originally served as my profit target.
The next several sessions should give us a much better idea whether this develops into a sustained technical recovery or whether today’s index-driven surge needs some time to digest.
This trade moved much faster than I expected.
I bought RDDT on Monday at $160.54, and by Friday it had already reached my take-profit area with roughly a 12% gain.
For a position trade, getting that kind of move in four days is exactly the type of situation where I want to reward the trade rather than become greedy with it.
At the same time, the circumstances surrounding RDDT have changed materially since I entered. S&P 500 inclusion introduces a new institutional catalyst, while the company’s revenue growth and profitability continue to give me reasons to remain interested beyond this short-term trade.
Disclaimer: This post reflects a position I am personally managing and is not individualized financial advice.
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