I actually find that explanation not very helpful and only broadly right (in the sense that he used premiums from writing call options to lever up even more). Almost everything else is wrong, tbh.
Some important aspects:
* CTN isn't holding cash, he's holding $F stock and offsetting ITM call options.
* The leverage he's getting isn't on a linear payoff. That is, it's not like I get a $1M loan on a $4k collateral. His position is more conplex and his payoff profile is nonlinear. I describe that more here: https://news.ycombinator.com/item?id=21457524
It's funny, and it's most likely wrong for RH to allow him to put on that position (in the unlikely event $F craters, RH is on the hook for _a lot_ of money).
But it's not as simple as explained in that reddit post.
Some important aspects:
* CTN isn't holding cash, he's holding $F stock and offsetting ITM call options. * The leverage he's getting isn't on a linear payoff. That is, it's not like I get a $1M loan on a $4k collateral. His position is more conplex and his payoff profile is nonlinear. I describe that more here: https://news.ycombinator.com/item?id=21457524
It's funny, and it's most likely wrong for RH to allow him to put on that position (in the unlikely event $F craters, RH is on the hook for _a lot_ of money).
But it's not as simple as explained in that reddit post.