Well, you can't deny that there is a fair amount of risk premium built into the skew at certain times.
That is the issue - if you do not pay attention to the level of volatility either direction (too high or too low), you are going to end up in pain. I, personally, have nothing against being short gamma or long gamma, but I am against doing thing "because it's a mechanical system". If you have a certain statistical way of verifying that the wings are rich or cheap right now, there is nothing bad about selling some wings and protecting yourself in some other way (e.g. buying vega or buying vol in some related instruments). Doing it mechanically and hoping to buy your options back once they double in price is a scary proposition.
Yeah, that extra penny in CL is worth another 500bps in vol. I personally don't see the point. The weekly decay on the straddle is better than 2x that BS 9 cent call. Trade some deltas in the straddle and 20 becomes 40 if you're correct, and that's trading one lots. I am not recommending a CL short straddle, but at least there is some decay.
Well, but would you rather trade a short straddle or a short variance swap which would include the skew?
Interesting indeed. How many trades do you do a month, in general and how quantitative is your selection criteria?
Would be hard to do the var swap at / near fair value, no? Better to leg the straddle in the screen. Am I missing something?