Typically these transactions are practiced on exercised options (i.e., shares) not options. I've never seen that offer for options.
And they're right, it is fairly risk free. The investors understand (and sign a lot of paperwork indicating that) they understand it's extremely high risk and will possibly end up that (a) the shares will be worth nothing or (b) the company may never, ever offer a liquidity event. In the event that they do, the shares or derived value thereof transfer to the lender/investor. In the event that they don't, the instrument performs exactly like a loan/promissory note backed by the equity the shareholder owns with no vehicle for enforcing repayment beyond derived value from the shares.
And they're right, it is fairly risk free. The investors understand (and sign a lot of paperwork indicating that) they understand it's extremely high risk and will possibly end up that (a) the shares will be worth nothing or (b) the company may never, ever offer a liquidity event. In the event that they do, the shares or derived value thereof transfer to the lender/investor. In the event that they don't, the instrument performs exactly like a loan/promissory note backed by the equity the shareholder owns with no vehicle for enforcing repayment beyond derived value from the shares.