A thought came to me the other day while considering the reality of trading options and more specifically the real life aspect of deciding to buy/sell calls over puts. The reason I say "real life" is because in theory, I believe, there shouldn't necessarily be any additional advantage i.e. extra profit in the scenario where you decide to buy a call (with x delta) if you predict the underlying to rise in value by a certain amount lets say y points and/or if you are focused on impl. volatility as well which lets say you believe this will increase by z %. Now, the other scenario is that you forecast the underlying to fall in value so you choose to purchase a put (with x delta as well) and the move is expected to be in y points with vol increasing also by z % (also assume the prices for the options in the alternative scenarios are equal, these potentially could just be perfectly ATM options with the current underlying value pinned on the strike). Essentially what I'm trying to say is that the profits for each scenario should be equivalent, in theory.Let's look at what is observed in the actual market, generally when the underlying of an option drops in value the volatility tends to rise and vice versa (this doesn't always happen however). The other characteristic that is seen is the shape of the impl. vol. curve, this is meant to be a symmetrical smile but can also be viewed as a hockey stick so that the puts are valued higher than the calls (or the put skew is higher than the call skew).My point is this, why wouldn't you just focus on an options trading strategy that only looked for downward movements because when you buy options you buy vega therefore if you predict a decrease in the underlying then subsequently buy a put and not only will you make money on the short delta (and gamma) but will likely gain from the rise in vol. plus the drops tend to be more violent than upward swings. I understand that due to asymmetry in the vol. smile this could be why the puts are more valuable? Yet a good portion of the time the vol curves are symmetrical smiles..On the other hand if you see a sharp move up in the underlying, why not sell puts (and yes I understand this is possibly the riskiest position you can take in the options world) as you will gain in long delta, short vol and even theta (obviously at the cost of being short gamma), also this maybe good in the vol. smirk situation as the puts have more value which could mean higher theta to collect?

Are you talking about equities? If so, I think you have to distinguish the behavior of single-name equity options from broad-based equity index options.The former indeed have more symmetrical smiles -- I believe for good reasons. In any event, at the risk of putting words in your mouth,your idea seems to be that these smiles are "irrationally symmetrical", and also that there may be good (risk-adjusted?) profits to be made by favoring long OTM puts or some other strategy. The obvious suggestion is to get hold of a good options database and try out your ideas systematically on paper and see if they hold water. p.s. I would add that, since long equity puts fulfill an insurance function, the expected return to a generic long position in them should be quite negative intheory and practice. Thus, any strategy involving them has to overcome this basic tendency.

Thanks for your response Alan. I agree my idea does require some hard evidence to prove. My experience is purely driven from trading index options but put simply, if at any point in time assume that the probability of the underlying going up or down is 50% (by now you probably can tell that I work for a market-maker i.e. delta neutral vol trading), then why should a put potentially have higher upside than a call considering what is actually perceived in the market? And sure, there is a generally accepted view that indices (and even equities) "always go up" which is then fair to say that the probability of an entire index to go to 0 is a lot less than an individual stock (the only asset I would partially believe that would hold its value long term would be a commodity). Based on this logic, buying puts on single stocks maybe even a better strategy than an index. To some degree, the fact that you say that equities tend to have symmetrical smiles (which is counter-intuitive as you would expect an index to have more of a smile than a smirk compared to a single equity) appears odd only because of the market behaviour that vol goes up when the underlying drops... if it wasn't for this then I wouldn't have a leg to stand on and there wouldn't be any extra (possibly magical) "edge" in the puts.

Index options are notably more expensive than single-name stock options. Have a look at this: http://archive.nyu.edu/fda/bitstream/24 ... -06-01.pdf. It's interesting for itself, and also has references to a lot of the literature on equity option expensiveness.

Thanks for the link, though kind of obvious. Also: big(large) caps are on the contrary cheaper due to the "overreaction" they create, aka the "Apple effect". This of course doesn't mean that everything in s&p500 or nasdaq 100 is cheaper. I am talking just the top of the top, usually: aapl, amzn, msft, fb, tsla, twtr, yhoo, intc...