Most of the time IV ends up being higher than realized volatility, however during huge market sell-offs IV tends to be lower than realized volatility. Despite this why it is considered a good idea to sell rich puts after such a sell-off? In other words, how is it possible to profit off of these puts if IV is lower than realized vol?
IV is forward looking (what is expected to occur), while realized volatility is backward looking (what has already happened). When you sate "...after such a sell-off?" <-- You are also inferring the sell-off is past, so future volatility at that point, should be more aligned with what it should be. Consider observing the relationship of Implied Volatility with "Future" Realized volatility of same time frame (shift the Realized volatility to the left), to get feel for how this relationship held up in the past. Below is a simple/crude view of a 30 Day moving period comparision on SPX for reference: The cloud area is where the IV was under the future Realized Volatility. The shaded area to the right, we will have to wait and see what the future holds. https://i.imgur.com/1p2dGcr.png
I guess I am stating the obvious. By selling put you fix the purchase price at the cost you want to own. If that price is not met, you walk away with the premium. You don't have to chase the security if at all you want to own anyway.
This works most of the time until like the last big crash we had... where we thought the crash was over, and it wasn't
If "after a big sell-off"... selling puts would be a winning trade... buying calls should be a bigger winning trade with lower risk.