Selling naked call options on a meme stock no less(assuming he sold them after the Reddit hype train started).
Also selling 200k worth meant he would have made it out like a bandit if the bet succeeded. I wonder what his net worth is if the broker allowed him to be leveraged so much?
Yes. The initial cost of the trade is a credit equal to the price per call multiplied by the number of calls you sold. This is the maximum you can make. Your risk on the other hand is theoretically unlimited, because the price of the underlying is theoretically uncapped.
That's when you sell a naked call. If you instead sell a covered call, you keep 100 * the number of calls sold in your account as collateral. Then you still only receive an exact credit at the time the position opens, but your risk is capped and defined as the price of the collateral at the time the position opened.
No you do have risk, it's just defined. The risk is equal to the collateral, which "covers" you in the event you're "called." This means the price of the underlying has reached the strike price of the option contract, and the counterparty has exercised (as they almost certainly would). Then you are obligated to provide 100 shares of the underlying * the number of calls sold to the counterparty. If that occurs, you lose money - the amount of money you can lose is your risk. In the case of selling covered calls it's capped to the value of your collateral, but it's still risk.
I wouldn't term it as "no risk", anything you do in the stock market carries risk, it's just a different risk. And it's not even a capped risk, if the stock goes up to infinity most of the gains will be captured by the person that bought your call, and you'll be only left with the shares.
>Aren't you just capping potential returns
Yes
>in exchange for immediate premium ?
That's not the main goal though, the main hope is to have them expire worthless so you can pocket the premium(or just going down in price over the option time period so you can flip it before expiry). So the best case is the stock going just under the strike price at the time of expiry. It wouldn't really matter that much if the premium wasn't paid out immediately but was paid at expiry to you by your broker.
Also selling 200k worth meant he would have made it out like a bandit if the bet succeeded. I wonder what his net worth is if the broker allowed him to be leveraged so much?