No one who has ever sold an OTM option has survived. Thats how I know OTM options are not overpriced. @nntaleb
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What is *bounded downside* in selling otm puts ? Unless they are hedged by buying further otm put.
Let P = current price, S = Strike price for a put. Let U = price of the put. We're talking about an OTM put, so P>S. If you're selling puts, the greatest amount of money you can lose is S-U. Whereas, if you're selling a call option, your downside is infinite.
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S-U is bounded downside. Selling a call option would not be bounded. You have unlimited downside.
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*Bounded downside* in selling deep otm puts can have only one implication that instrument won't go below zero or negative. But in case of a.back swan event one will reach icu much earlier than stock reaches 0.
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*a black swan event
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