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?
Your max loss is infinite, as the plaintiff has now discovered.
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.
>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.