Tail hedging seems great in theory and I know that several professional investors do it (Universa, Nassim Taleb, etc), but I'm not sure how they make it work. S&P500 out-of-money puts are expensive and it just seems that years or decades of put losses leading up to the "big event" could run you dry.
sell at the money monthly straddles to finance the otm puts ?
selling insurance to buy insurance defeats the point, ATM options only pay for expected moves so you have no protection gain with your strategy
The point is giving up some upside gain for downside protection. You are net selling insurance, with a slight bullish bias.
For what purpose?
Downside protection for when market is near all time high and or trade war posturing going on...
Knock yourself out, but as a sell side options trader I can tell you whitepoplar is right, payoffs not great if your doing it purely as a hedge. It makes more sense if you have a specific view on vols, in which case you don't really want to be buying them repeatedly, a few tenors at most, but really your prob better off just reducing your exposure. And selling otm to finance just makes things worse, it's something a bank would tell you to do to make more commissions from you
ATM finance otm, not the other way around... you are short volatility usually.