NMOS limiting circuit for Colpitts oscillator
I think that that is a sloppy circuit drawing.

I would use NMOS symbols for M1 and M2 to make things more clear.
Also I'm using the official symbol for a gm to make clear it had a current output
Maybe the direction of the current needs to be reversed, this can be done by giving gm 
a negative value.







simulate this circuit &ndash; Schematic created using CircuitLab

Let's assume that \$V_{out}&gt; 0\$ so always positive:

No we can see (more clearly) that MN1 is always off as it has \$V_{gs} = 0\$.
Sure you could argue that the Drain-Bulk diode will at some high voltage will show breakdown (all diodes do) but as there is no information on this I think we should just assume that this does not happen. 

MN2 is connected as an NMOS diode so it will start conducting when \$V_{out}&gt;V_t\$

But what happens if \$V_{out}\$ becomes negative? Then MN1 will behave as a diode. Actually the symbols for MN1 and MN2 I used are limited as the body (or bulk,backgate) connection is directly connected to the source of these NMOS. For a negative \$V_{out}\$ that would make the body diodes conduct. In the real world the bodies of MN1 and MN2 would have to be connected to the most negative supply voltage 
available to make sure the body diodes never conduct.

For the moment let's just ignore the body diodes, then when \$V_{out}&lt; 0\$ MN1 will act as a diode, to see that simply imagine the node at \$V_{out}\$ to be the source and a grounded drain.

So the voltage swing at \$V_{out}\$ is somewhat limited by MN1 and MN2. Those NMOS behave similar to zener diodes, drawing more current as the voltage increases. This limits the amplitude of \$V_{out}\$ as the amplifier stage gm has a current output. MN1 and MN2 "eat up" some of that current as the amplitude of \$V_{out}\$ increases.

This is like a feedback loop and it will stabilize at the point where the loopgain = 1 as is true for all oscillators with a stable output amplitude.