An option's price contains a forecast, the implied volatility. Buying a straddle before an event is not a bet that the stock moves; it is a bet that it moves more than the straddle already implies. That distinction is invisible in the payoff diagram, because the diagram is drawn at expiry while the loss usually lands the morning after the event, weeks earlier, when implied volatility collapses.
Two numbers make it concrete. An at-the-money straddle costs approximately the expected absolute move, E|S_T − S₀| ≈ S₀·σ·√(2T/π); and the straddle's breakeven move is its price over spot. Those are close by construction, a fairly-priced straddle is, in expectation, a coin flip before costs, and you win only if your volatility forecast beats the market's. Worked example 3 runs an event where the stock moves +8.3% and the buyer still loses, because the breakeven needed +13.1% and implied volatility fell from 62% to 34% the instant the uncertainty resolved. That is the modal outcome of buying event volatility, not an unusual one.
Selling volatility fails the other way: it works most of the time and then fails catastrophically. The program's position: uncapped short-volatility positions are outside the risk policy this corpus teaches (M9.01's anti-ruin overlay forbids any position that can threaten survival). Butterflies, credit spreads and covered calls against stock you own are legitimate; naked short straddles are not, and "it works 85% of the time" does not change the arithmetic of the 15%.
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How does skew change a zero-cost collar?
Skew matters, and it changes your collar. BSM assumes one volatility across strikes; equity markets persistently price downside puts at higher implied volatilities, because crash-protection demand is structural. The consequence: a zero-cost collar is asymmetric in the real world. In Worked example 1, at a flat 28% volatility a ₹1,750 put funds a ₹2,023 call, a band of −5.4%/+9.4%. Re-price the put at 33% and the call at 25% (a modest, realistic skew) and the same put funds only a ₹1,939 call: −5.4%/+4.8%. Skew halved the upside you kept. Any collar built on a flat volatility overstates how much upside a zero-cost structure preserves, not a rounding error, the whole decision.