Selling out of the money puts will almost never generate a downdown. Hence an infinite sharpe because the denominator is zero. Technically you are still beating the risk-free rate but there is a lot of downside risk not accounted for in the shapre ratio. Often a huge amount of leverage is applied to boost returns.
except for the occasional once-in-a-decade event that would bankrupt you. On the time scale where selling out-of-money puts makes sense, the market is efficient and there is no free lunch.
spending a decade high rolling at yacht week is totally worth it though. don't pretend like unsustainable luxury is a bad thing, much better than just dreaming about it
also, you can mitigate black swan events by not being too leveraged up, and going further out on expirations. and finally, just keep rolling.
No, you can't mitigate black swans that way. To get any return on selling out of the money put options (with even the remote semblance of sustainability) you have to have a crazy 100x or 1000x leverage.
And you can't just going further out on expirations without posting proper margins. That is, you can, but not legally.
