Prompt

Reason through the following problem and give your best answer. Think it through carefully: state your assumptions, quantify where you can, weigh the evidence, flag what is uncertain, and end with a concise verdict or recommendation. Aim for a thorough but focused response of roughly 400 to 700 words.

PROBLEM:
A trading desk has made money in 19 of the last 20 quarters using a strategy that sells deep out-of-the-money options for steady premium income. Leadership wants to triple the allocation given the track record. As the risk officer, reason through whether to approve it and what you would require first.