Assuming positive skew premium & continuously delta hedged, is selling OTM strangle always a superior strategy than selling ATM straddles (hence P&L is theoretically simplified as 0.5 * Gamma * Spot ^2 * (IV^2 - RV^2)), since OTM IV is higher? Thanks.
This is a bit like saying it's "a superior strategy" to lend $100 for 2 years rather than for 1y year because you earn twice as much interest. The skew premium is there to reflect directional risk in the underlying rebasing itself to a materially different level, and the market participants' anticipated impact on demand/supply of options written on that underlying such a rebasing would entail. Moreover, most markets have a directional bias which drives the skew: for example in EM FX options markets the bias is to a sell-off rather than a rally so OTM calls > OTM puts. It may well be that the skew premium may be being overpriced - in which case options traders "sell flys" i.e. buy atm straddles vs selling strangles. So I would remove the "always" from your statement and make it subjective.
There's a reason why the otm IVs are higher to begin with.
Market moves/returns exhibit kurtosis. This implies most of the time they move in a confined range, from time to time they exhibit very large moves. When they exhibit very large moves, you probably don't want to be short cheap tails. Hence rational traders would demand a premium to be short these, driving up the price and thus vols of otm options.
Each market has its own dynamic and thus Skew shape.