Short seller Jim Chanos said retail investors are not considering all the downside involved with speculative trading in so-called meme stocks. "I think they're not cognizant of all the risks they're taking in these positions," the founder of hedge fund Kynikos Associates said. "If you end up losing money, you only have yourself to blame." Chanos' comments came after AMC Entertainment , which saw its shares rise dramatically this year amid speculative trading by retail investors, reported a less-than-expected quarterly loss. Its shares surged double digits in premarket trading before giving back much of the gains by midmorning. "If you become a financial nihilist, ... where you basically say, 'I don't care about fundamentals,' ... what is the risk you're taking if you should be wrong? There's no margin of safety," Chanos told CNBC's " Squawk Box ." "The problem with meme-stock trading is that if it turns out you're wrong or the crowd moves on to something else, your downside can be dramatic," he added. The short seller said he has "a small put position" against AMC that is less than 1% of his fund's net assets. A put is a type of option that allows traders to bet that a stock will fall. However, Chanos noted a difference in institutional portfolio allocation compared with meme-stock traders. "For retail traders, a stock like AMC could be half their portfolio or a third of their portfolio, or God forbid, 100% of their portfolio. So the risk that they're taking is far, far greater," he said. Chanos made his name on Wall Street as a short seller with an eye for identifying fraud. In short selling, an investor bets that a stock will decrease in value. The investor borrows shares and sells them at market price. If the stock price continues to decline, the short seller can buy the shares back at a lower cost and flip a profit. However, if the stock price rises instead, the investor can lose money. Earlier this year, retail investors pushed prices of meme stocks like GameStop and AMC Entertainment higher, inflicting pain on short sellers who were betting against the stocks. Chanos rose to prominence when he successfully bet against energy trading company Enron in 2000 after discovering deceptive accounting practices. More recently, he shorted Chinese coffee chain Luckin , which turned out to be a correct bet after the company paid a penalty to the Securities and Exchange Commission to settle accounting fraud charges last year.
David A. Grogan | CNBC
Short seller Jim Chanos said retail investors are not considering all the downside involved with speculative trading in so-called meme stocks.