That sounds a bit backwards. IMO, if the vol is statistically low already, realisation is very directional, while at high levels of vol (which usually happends when market is already down) you can "catch" a volatile bounce-back.
Right, so short delta lean wouldn't be as damaging in a market bounce-back rally because you would still earn on volatility dropping. If the market continued lower, you would already have short delta lean to help hedge the vola rise. Or what am I missing? If you are referring to 'short vola now and hedge when it tanks', while it is statistically and relatively low, again I think the market is friendly for short premium (seasonally, fed policy effect, etc.) As opposed to buy low, sell high; sell low, buy back even lower?
The question is not in probability of win/loss, but in risk/reward. While chances are you are going to realize less then the market is implying (Dec13 ATM is at 9.75%), the downside on the vol side is a couple vols while you can easily realize way more, especially with the Fed meeting right before the expiration. This trade has a very convex payoff here. Let's say you sell vol now and put on a short delta lean. The only reason for the realised volatility to pick up is if the market sells off from it's highs. In this situation, you make some money on your delta lean that would soften the blow a little bit. If the market is already down (which is usually the case when implied volatility is high) it can realize very well on the way up, such as a relief rally. Having a short delta lean in that case is unpleasant, since you lose money on both your volatility position and on the delta lean. In your case, vega P&L is almost certainly going to be dwarfed by the realized gamma gains/losses, so your delta lean would mainly be there to protect you against large realized moves.
Initially I worked on short vola and short delta lean, but I kept thinking that since overall I think long delta is the way I see the market going, that's how I would position myself. Ofcourse you could say 'why not just trade the underlying', but I think short atm premium skewed one way or the other gives you more flexibility (locally, anyway) than just straight long/short.
Ha , well after your comments I reworked some things and I think short delta lean is the way to go. I think being able to take quick profits in this seemingly long only market is what made me want to go long delta lean, but in the big picture that should be secondary to "...mainly be there to protect you against large realized moves."
There was a guy named shooter who had a short vol biased fund in the mid 2000s. He blew up in 2006 but made millions beforehand.