Which is kind of surprising to me, considering there is systematic overpricing you'd think institutionals would get in on it. In essence though it's just short vol so I guess there are other ways to do it besides iron condors
Most insitutional investors don't like to be short vol because they are afraid of the business shut down risks. (Why there's a systematic overpricing of vol) But if you are going to be short vol it's better to be short ATM as you get more vega/risk and you minimize trickier greeks like dgamma/dspot. If you were shorting OTM, it's because you had an explicit view on skew. All the risks taken had to be explained to their bosses and explaining that you are shorting an iron condor where the gamma of gamma will go crazy if the market sells off 5% is a tough argument to make.
Some who advocate selling ICs recommend utilising a portion of the premium collected to buy 'units', far OTM puts for pennies, as a hedge against such sell offs. Presumably this will mitigate the damage somewhat, but I wonder if it would be adequate in the scenario you describe?
Why not sell SP500 otm put spreads whith a stop on the short leg place stop where a percent pull back in the underlying historically wasn't a pull back but a Fundy shift in trend IE down ... hence get your size or leverage correct with your capital nobody speaks to this on Et its about leverage. ?
You could. That could improve your risk reward, but its besides the point. Selling vol is positive expectancy but with poor risk reward ratio. Institutions try not to sell vol where they have lots of other risk factors unless they are massively compensated for it.
The edge is in how you manage the trade as time progress. Options give you more flexibility in modifying your position as your expectation changes over time.
I couldn't agree more with this description of the majority of "money managers / hedge funds." Finally, my thoughts expressed in a few brutally honest sentences.