What Is the Primary Risk of Selling Short-Dated ATM Options?

The primary risk of selling short-dated ATM options (short straddle or short strangle) is the extreme Gamma risk combined with high Theta. A sudden, small move in the underlying asset's price can cause the Delta to spike rapidly, creating a large, unhedged directional exposure.

This Gamma risk, coupled with the potential for unlimited loss, is the major danger, despite the benefit of high Theta decay.