That doesn't describe reality, so describing events in your scenario necessitates a toy model.

Fair point :-) But still, with enough degrees of freedom in the toy model, the task becomes easy and so uninteresting.

It's called "picking up pennies in front of a steamroller" for a reason.

I know. Which means you need proper risk management and capitalization. LTCM died because it was overleveraged and could not meet the margin calls. And LTCM relied on hedges, not on diversification.

Since deep OOM options are traded, there are people who write them. Since they are still writing them, it looks like not a bad business :-)