So, essentially then, the models are right and the market is persistently wrong; amazing - I never thought it could be that easy to profit with options.
The models are not perfect because they're not clairvoyant. They are simply the best approximation available. If you're trying to price a derivative for a specific need, then a model is helpful. Trading in public equity markets, as I assume you're proposing, not so much. But I'm a fan of learning as much as you can about any endeavor, so you should understand the basis for the models, but don't expect them to materially influence your success.
Overpriced vol does not necessarily make for a positive p/l, but it's a step in the right direction-if you are looking to short gamma. But I think you're missing the reality that market participants don't all have the same expectations. Some are path-dependent, and thus can't tolerate a loss that exceeds some predetermined threshold. Some have a view on the future price of the underlying and want to use options to express that view. And others have long equity portfolios that require participation in the derivative markets for marketing or compliance reasons. So, for many traders, vol is not an unimportant part of the equation, but it may not be as relevant to them as it might be to you.
The book mentions that even atm puts have a negative return
Depends. I'd re-read that section and verify your interpretation. For instance, you may be thinking short and the author may be describing long.
...in an uptrending market atm calls should be priced higher than atm puts, but put-call parity prevents this, creating a distortion that can be exploited.
Sometimes they are priced higher, if market participants bid them so. But put-call parity has nothing to do with the explanation. And in a liquid offering, there's nothing to be exploited.
...I also noticed that the book mentioned that buying otm calls wasn't as consistently as profitable as selling the otm puts: what could be the reason for that?...is it possible that both the models and the market pricing have built in flaws?
Models have flaws, but the market pricing is whatever the market pricing is. It's not an issue of being flawed. Except in hindsight.
...what concepts am I conflating?
I was commenting in general about several concepts you were addressing: models, markets, overpriced, underpriced, moneyness, etc. No biggie.
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