1) Of course. The issue is not the positive return. The S&P 500 has returned on avg 9.5% a year the last 100 years. Anyone can have that return if they choose to passively hold long term. The S&P 500 is not an edge. Nor are holding long bonds or selling puts. The put seller does have some disadvantages. They incur transaction costs month after month. The passive index holder does not. The put seller has a taxable event each and every month, the long term passive index holder does not. And the put seller has a different payoff distribution then the passive long term index holder. The return earned is not free, there is a proper discount rate that has to be applied which takes all these things into account.
2) It may or may not be riskier. We haven't set any guidelines. Are you selling puts with leverage? ATM? DOTM? Weekly, monthly, 6 months out? We can't make these blanket statements.
3) Again, you cannot make these blanket statements. Are you buying ITM, OTM, ATM puts? Are you buying with leverage? For example, there are many people who will take long stock risk only if they are holding long puts. These means without being long puts, they might miss out on the stock rally for fear of being long. You have to weigh the total net benefit of the overall position. For example, going into the nov election, many people opted to sell all their long exposure thinking a Trump victory would crash the market. Many instead chose just to hedge and keep their longs. Those who sold their longs did not lose any money from the puts but they also missed the 10% rally in the market. Those who bought the puts lost 100% of their value but gained 10% from the rally. Do we measure this trade by saying the long put holders lost, or the overall benefit was positive. Whenever we talk about trading we have to price in the opportunity cost of our decisions. It's not as simple as selling puts makes money and buying puts loses money.
