I ran some backtests for the last three years on the FAANG stocks using 45DTE, selling short strangles and NOT trading earnings. All of them had positive returns. However, the whenever I added a stop loss, the returns deteriorated significantly. To me, one needs gonads of steel to hold on through the drawdowns and trade these, if trading unhedged and without stops. Truthfully, the naked shorts are not very margin efficient, and maybe short condors are more efficient. Good luck.
You answered your question in point 1. If your getting 10% returns a month in this LOW volatility market, your risking a big hit on volatility expansion alone on a black swan event. In addition the same low penny spread your used to, will disappear before your eyes to absurd levels as no one wants to step up and make a tight market during the chaos. If the move starts on or before the open, by the time your "options pit" opens with stable quotes the damage can be unbelievable. Of course I am guessing your are at around 50% maintenance margin or more with these returns. If so you maybe taken out by your broker on margin liquidations by rapidly expanding option values, before you even have a chance to plan your exit. I know this may all sounds like paranoia to you, but I have experienced the shock and big losses of each one, so writing from my own experience of being stupidly over leveraged and getting caught more than once by a "black swan event". I still write some short options but at much lower leverages, the return is less but I stay in the game this way.
You lower your risk by sizing your positions such that you can survive a worst-case-scenario. You can't ignore the 800-pound Gorilla in the room. Some day he WILL sit on your face. If you can't predict the impact of worst-case-scenarios on your portfolio - and if you can't size for them and still create a profit stream - then you need to find another way to produce profits. It's that simple.
We did some backtesting for FAANG stocks. some of them show good results if you hold till expiration. For me, it's way too risky. When setting the parameters "close 14 DTE", the only one that showed consistently good results was FB. The Volatility Option Trade After Earnings in Facebook
Try the same test in 2011. It was a particularly bad year for premium sellers from what I've seen. The last three years are not a good sample for projecting future returns.
You're probably about the best person to answer this--got any reading on such strategies you could point us to?
How We Trade Straddle Option Strategy We are trying to always maintain about 20-30% exposure to those straddles. In addition to consistent money makers, they also serve as excellent black swan insurance.