What Is the Primary Risk When Selling OTM Options for Premium?

The primary risk when selling Out-of-the-Money (OTM) options, a strategy often called 'short premium,' is the risk of the underlying asset price moving sharply and quickly, causing the option to become In-the-Money (ITM). This is known as 'tail risk' or 'black swan' risk.

Since short option positions have theoretically unlimited loss potential, a sudden adverse move can lead to significant, unhedged losses.