GameStop Corp (NYSE:GME) shares have plummeted again in Wall Street on Tuesday.
The games retailer, which saw its stock carried above US$480 at one point last week by a frenzy inspired by traders using Reddit’s WallStreetBets online forum, closed overnight at US$225.05.
In early trading in New York, the shares plunged more than 50% to US$109.5.
They are still up more than 500% from where they started the year, however.
Support for the stock continued on r/WallStreetBets, where members regularly boast of having or needing “diamond hands” to hold a stock where the price is wobbling.
Billionaire Cuban claims diamond hands
They were joined by billionaire entrepreneur Mark Cuban, who offered his two cents’ worth in an “AMA” or ask-me-anything question and answer session, that was confirmed as “legit” by a Reddit moderator.
Asked for his take on why GME was tumbling, the owner of the Dallas Mavericks basketball team said the stock was likely to be falling “because the source of demand has been crippled” after apps such as RobinHood (RH) shut down trading in GameStop they “cut [off] the greatest source of demand” and led to margin calls for those who bought long options or other leveraged trades.
“They created a RobinHood Dive. No RH buyers, means sellers lower their price to find buyers. And they keep on lowering it till they find buyers. Keep the most natural buyers out of the market and the price keeps on FALLING,” he said in the forum.
“Then that drop accelerates because the more the stock falls the more owners who bought on margin get margin calls. When that margin call happens, its brutal. They just take your stock, send you a fuck you note and sell your stock at the market price, no matter how low. They just want to get your cash to pay back the loan.
“That then accelerates the selling. Which then leads to what we are seeing in the market right now with GME in particular,” he said, before professing that he would be in the diamond-hands camp in this case.
“So what to do?
“If you can afford to hold the stock, you hold. I don’t own it, but that’s what I would do,” said Cuban, whose net worth is calculated to top US$4.3bn.
“Why? Because when RH and the other online brokers open it back up to buyers, then we will see what WSB is really made of. That is when you get to make it all work.
“I have no doubt that there are funds and big players that have shorted this stock again thinking they are smarter than everyone on WSB.
“I know you are going to hate to hear this, but the lower it goes, the more powerful WSB can be stepping up to buy the stock again. The only question is what broker do you use . Do you stay with RH , who is going to have the same liquidity problems over and over again, or do you as a group find a broker with a far, far, far better balance sheet that wont cut you off and then go ham on Wall Street.”