Holy crap this makes my head hurt just trying to figure out how this whole thing works... So when someone buys put options they basically insure themselves against a price drop in the future. For instance if I had just bought 1000 BTC but wanted to insure myself against a price drop I could buy some put options with it that insure me that I can sell at a predetermined price at some point in the future or before it. So if the price crashes way below my put price I could choose to sell my BTC at the predetermined price. Now what happened here is that someone naked shorted those puts which makes it a little bit more complicated to wrap my head around. So basically someone borrowed puts that don't exist and sold those to that mpex bot, but he will have to buy those non-existing puts back at some point in the future. When the price goes down those puts will become more expensive, but if the price rises they will become cheaper. Did I get this right? As for the reason why someone would do that, I guess it's because there's not enough liquidity to do it through buying and selling actual BTC on the market.
Correct, except for the reason why he sold puts instead of buying calls is that the market-making bot charges a HUGE markup if you want to buy options from it. But you can always sell to the bot for at least the current nominal value, so you get a better value selling to bot than buying from bot. But then you have unlimited downside risk (in BTC terms).