Well, somebody is left holding the risk, eventually. For this discussion it's not important if that is going to be the insurance company itself or a re-insurance entity.
Well my point is that while it's a stretch to compare retail account with insurance company, it's ridiculous to compare it to re-insurance company.
So here is an example where it would have been profitable over the last year to sell vol (darker colour is implied vol + 30 days, lighter is realized vol (20 day MA): I'm sure at some point that will change to be somewhere else but it seems like these opportunities continue to exist, perhaps in non-mainstream equities. In any case, I absolutely hate stocks. Anyone trade FX options?
This looks like what High Volatility Put Write ETF (HVPW) was trying to accomplish, but it closed down. They were selling puts (also equivalent to selling covered calls) at highest IV, on 20 or more underlinings I think. Also, since you’re not discussing a riskless strategy, but using some arbitrary entry and exit criteria then you’re really getting into regular trading. And in such case I’d first come up with a mildly profitable or at least safe strategy/algo on the underlining, then try to enhance results through options. And without putting constraint on what options strategy may come up as optimal.
Riskless arbitrage (vs non-riskless arbitrage and trading strategies). I wrote a bot for riskless arbitrage but really it wasn’t doing more than market making - profiting off of bid/ask spreads across somewhat related options. This rarely works now but market makers like Citadel, Virtu and possibly Renaissance are masters of many riskless strategies. Although maybe I should’ve say “since you’re not discussing an arbitrage but a trading strategy”.
What I really want to know is of all the people who actually trade the stockmarket and are retail traders, how many sell options for premium and make monies doing so? Now, the flip side, how many other retail traders who sell options for premium lose monies? I would guess you would need an algorithm to consistently, make monies selling option premium. And the possibility of huge number of adverse moves causing you huge losses is there as well! I will place myself on the ones who lost monies trying to sell options premium. My positions was hedged too since, I used options spreads.
The trades did not work out? When I got into those trades, I was using ThinkorSwim with their probabilities. Those options I sold were way out of the monies and were supposedly 80% chance to end up out of the monies with me pocketing the small premiums of $200-$300 for 5 contracts. Instead, they ran up and cost me multiples of the premium collected. Out of 7 trades, only 1 ended up profitable. Take note too after paying commissions and the cost of hedging buying call options, that profit is even less! I am an options buyer nowadays and that is way better in terms of risk versus reward!