It makes no difference if you buy a 20 delta option or sell a 20 delta option, the expectancy is EXACTLY the same. There is no edge in SELLING an option with the same delta over BUYING that same option. Theta is not an edge. It's a function of volatility. Volatility is a function of delta. Delta is a function of price. The delta of any given option is priced very efficiently as to not favor the buyer or the seller. If you say that selling a 20 delta option has some sort of implicit edge. That would mean one could sell any given option and buy it's synthetic counterpart for a risk free profit. Obviously according to put-to-call parity this is not possible. Many people believe, wrongly so, that there is an implicit edge in selling any given option over buying that option. This of course is mathematically impossible. The only way one can realize true theoretical edge in any given option is through conversions and reversals as it locks in any kind of pricing discrepancy. Albeit at the cost of pin risk. Now there are many people who sell options for the purpose of either speculating that back month implieds will drop in the future creating vega gains, or through a drop in spot volatility. However, one does not gain this edge by simply selling an option, but rather being correct on his/her assessment of future implied volty or spot vol. If he/she is wrong on the future of implied vol or spot vol, they will lose money. The answer is much more complicated than that.
Now the grey area has to do with one's personality and what they feel comfortable doing. Some people are better long gamma traders. Some people are better short gamma traders. There are very distinct psychological differences between the two. That discussion extends beyond mathematics and theoretical edge. When you learn to trade, you need to get out of these boxes we put ourselves in like being bullish or bearish or saying that you just buy options or just sell options. Hopefully you put on trades that make sense and have meaning behind them. And hopefully they have an attractive risk to reward structure or will at some point during the trade. It's not as simple as well, I'll just sell options. Or, I'll just buy them. Or, I'll do mean reversion trades. It's much harder than that. Trading options successfully really will be the hardest thing you ever attempt to do in your life. And to say all you have to do is "this" whatever that is, is really undermining how tough this business is. If you sell a 20 delta option, there is an 80% chance that the option will expire OTM and 20% chance it will expire ITM. If you sold this option 100 different times and added up all the results from doing that, including the times it went out at zero, and the times it went out DITM, and then divide by 100, you will get the current price of the option, or in other words, it's FAIR VALUE. You can go as far out as you want, hell you can sell a 5 delta option. The bottom line is, there is no edge in doing so. One in twenty times, that 5 delta option will go DITM on you. There is no way around this.
You can hedge it all you want, but then you have to factor in the all the probabilities that your hedges will be wrong. Most people who sell options either can't trade or are afraid of trading, that is why they sell OTM options. They are hoping they don't have to trade. So they don't make the best directional traders when it comes time to start hedging the position. They will always buy the highs, sell the lows, get in too late, too early, you name it. If you really want to sell premo sell the ATM. This way gamma curvature actually works in your favor. Much more controllable. When you sell OTM curvature, it's almost impossible to control and manage. Why? Because the curvature is constantly changing. A lot of retail traders get lured into the comments like, well if everyone loses money because they are buying options, then the obvious answer is just to start selling them. Well, here is where that fallacy falls apart. The reason most people lose money buying options is because THEY CAN'T TRADE! It's the same reason everyone else loses money. It's the same reason the avg guy blows out his acct in 6 months trading forex. They simply can't trade. Selling options is not going to change that. A bad trader is a bad trader. It's so easy to take numbers and arrange them in such a way that it makes something easy to sell to the public. But there is no truth behind those numbers. Selling the 20 delta options makes you feel safe because it's OTM. But if you run a simple Monte Carlo simulation on random moves thousands of times over, you will see that your results will be completely identical.
You can try this experiment yourself by flipping a coin and running the results on a spreadsheet. Whether you buy heads or sell tails, at the end, the results will be the same over an infinite time period. Now read this statement. There is no edge in BUYING options over SELLING them. Does that make it better? It's the same thing, but maybe you like it better when written that way. Take a single die and roll it. You have six numbers that can come up. Let's say you could buy a bet and sell a bet on that die. In other words if I bet $3 and the die came up 6, I would earn $3. If I sold a bet for $4 and a 2 came up, I would make $2. Well, if you calculate the fair value of this bet, you would know that the fair value, or expected return is 3.5. Now obviously you can't roll a 3.5, but that is the number you should bet to break-even over a large number of rolls. If I was to buy a bet, I would want to bet less than 3.5 and if I were to sell a bet, I would want to sell it for more than 3.5. Doing so over a large number of rolls, would guarantee me a profit. However, if I bet 3.5, no matter if I am the buyer or the seller, I can expect to only break-even over the long run minus any commissions. Actually you can make money in options consistently. Unfortunately it just requires you to be a great trader. There are no secret strategies or systems. Just good old fashioned trading. The bad news is, most of the guys just don't have the emotional or the psychological makeup to ever make this work. But for the few that do, there is a lot of money to be made.
Now the grey area has to do with one's personality and what they feel comfortable doing. Some people are better long gamma traders. Some people are better short gamma traders. There are very distinct psychological differences between the two. That discussion extends beyond mathematics and theoretical edge. When you learn to trade, you need to get out of these boxes we put ourselves in like being bullish or bearish or saying that you just buy options or just sell options. Hopefully you put on trades that make sense and have meaning behind them. And hopefully they have an attractive risk to reward structure or will at some point during the trade. It's not as simple as well, I'll just sell options. Or, I'll just buy them. Or, I'll do mean reversion trades. It's much harder than that. Trading options successfully really will be the hardest thing you ever attempt to do in your life. And to say all you have to do is "this" whatever that is, is really undermining how tough this business is. If you sell a 20 delta option, there is an 80% chance that the option will expire OTM and 20% chance it will expire ITM. If you sold this option 100 different times and added up all the results from doing that, including the times it went out at zero, and the times it went out DITM, and then divide by 100, you will get the current price of the option, or in other words, it's FAIR VALUE. You can go as far out as you want, hell you can sell a 5 delta option. The bottom line is, there is no edge in doing so. One in twenty times, that 5 delta option will go DITM on you. There is no way around this.
You can hedge it all you want, but then you have to factor in the all the probabilities that your hedges will be wrong. Most people who sell options either can't trade or are afraid of trading, that is why they sell OTM options. They are hoping they don't have to trade. So they don't make the best directional traders when it comes time to start hedging the position. They will always buy the highs, sell the lows, get in too late, too early, you name it. If you really want to sell premo sell the ATM. This way gamma curvature actually works in your favor. Much more controllable. When you sell OTM curvature, it's almost impossible to control and manage. Why? Because the curvature is constantly changing. A lot of retail traders get lured into the comments like, well if everyone loses money because they are buying options, then the obvious answer is just to start selling them. Well, here is where that fallacy falls apart. The reason most people lose money buying options is because THEY CAN'T TRADE! It's the same reason everyone else loses money. It's the same reason the avg guy blows out his acct in 6 months trading forex. They simply can't trade. Selling options is not going to change that. A bad trader is a bad trader. It's so easy to take numbers and arrange them in such a way that it makes something easy to sell to the public. But there is no truth behind those numbers. Selling the 20 delta options makes you feel safe because it's OTM. But if you run a simple Monte Carlo simulation on random moves thousands of times over, you will see that your results will be completely identical.
You can try this experiment yourself by flipping a coin and running the results on a spreadsheet. Whether you buy heads or sell tails, at the end, the results will be the same over an infinite time period. Now read this statement. There is no edge in BUYING options over SELLING them. Does that make it better? It's the same thing, but maybe you like it better when written that way. Take a single die and roll it. You have six numbers that can come up. Let's say you could buy a bet and sell a bet on that die. In other words if I bet $3 and the die came up 6, I would earn $3. If I sold a bet for $4 and a 2 came up, I would make $2. Well, if you calculate the fair value of this bet, you would know that the fair value, or expected return is 3.5. Now obviously you can't roll a 3.5, but that is the number you should bet to break-even over a large number of rolls. If I was to buy a bet, I would want to bet less than 3.5 and if I were to sell a bet, I would want to sell it for more than 3.5. Doing so over a large number of rolls, would guarantee me a profit. However, if I bet 3.5, no matter if I am the buyer or the seller, I can expect to only break-even over the long run minus any commissions. Actually you can make money in options consistently. Unfortunately it just requires you to be a great trader. There are no secret strategies or systems. Just good old fashioned trading. The bad news is, most of the guys just don't have the emotional or the psychological makeup to ever make this work. But for the few that do, there is a lot of money to be made.