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Yes it was a gamble. The thing he had going is the expiration date was long enough that he could’ve cut his losses quickly if things went the wrong way, but last 2 days have been absolutely insane.

I believe he bought long calls, so the downside risk was probably not that significant - something like 50% if the stock went down to a value-based level. Short sellers, on the other hand, have been losing their shirts at this same level for some time now.

Most option traders are hedging/arbing with other instruments. It's very possible (and more likely) the other side of the trade made money too.

It's options, they just expire worthless. He could never lose $4.2M