There is a way to profit from decreases in volatility (i.e. to "short" volatility) whose risk is strictly limited. You can buy put options on the volatility index, the VIX. If volatility falls, the VIX falls, and the value of your puts rises. If you're worried about the impact of the "premium" (or the "time value") of the options, you can buy deep-in-the-money puts. These have far less premium, and a larger delta, than at-the-money puts. Like other options purchases, buying puts on the VIX is a limited risk play. The most you can lose it the purchase price of the option. So if you decide to risk 3% of your account on a "Short Volatility" play, the most you can lose on that play is 3% of your account, no matter what happens to volatility.
Great point there. I think most people forget about deep in the money puts because greed overtakes them and they want the potentially superior returns of a at the money or even slightly out of the money option.
So is the smile structure for the VIX so tilted that ITM Puts (OTM Calls) have lower IV than the ATM contract?