To be fair, if you can sanely use options on the buy-side (as insurance or call income, as opposed to buying lottery tickets) you can also sanely use them on the sell-side too. The problem is, you need deep pockets to do so on the sell side, since you need to be able to buy the stock without breaking a sweat. Specifically, the sane way to use options on the sell side is to use them as a way to commit to a price you believe is (or technically, will be) fair, regardless of what the market says on the matter at that time. (Yes, this presumes you believe EMH is bullshit.) If they expire, you make a decent income. If you're assigned, you're content purchasing the stock at that price, regardless of the market price. (Or, if you're not due to some underlying change in the fundamentals, you can occasionally roll the contract forward. You should have probably done this before assignment day otherwise you are fooling yourself.)
Of course this leads back to your main point being unchanged: only experts are going to have confidence in knowing what a "fair" price is for a business, so selling options (or using them in general) should be left to such experts.
The problem with people, markets and efficiency: They see markets and go - wow - that's pretty fucking good, my prices just went down, I got better service and it's harder for others to make money now so things must be priced competitively.
Problem is they go to far. As soon as they state that you can't make money in markets - they've just crossed into stupid territory. If that were true - the world would be efficient and no one would ever make any money, because everything would be priced correctly.
What is with people separating stocks from businesses. If you work at a business, you are by definition stating that the market you work in is not efficient and hence EMH is bullshit. It's like massive cognitive dissonance - stocks are completely separate in people's minds from the shit that actually gets done - it's insane. It's just like religion. I mean you can happily see someone flying in a plane and the next second they'll be telling you how god exists and how science is bad. YOUR IN A FUCKING PLANE! Your life depends on science and engineering and they state that you are wrong.
Markets are what I'd call "better than central" planning efficient. They are better than central planning - for example you are a young programmer - how will a government bureaucrat know that you should go start an app company - it's better if people figure out what to do themselves, because they know themselves the best and can on average pick careers more correctly than a "sorting hat". But they are still pretty crappy because people make shitty choices all the time.
I agree with all your points - sell-side is a great money maker for people who know their shit. Buffett is one example. He runs $60 billion in insurance float, with nearly $24 running reinsurance and mega-cat risk. He makes a lot of money. But unless you have the financial reserves to back up your claims - don't even bother.
Buy insurance if you wish to hedge yourself - otherwise - stay the hell away.
Yeah it's all about how much capital you have. People selling "cheap" options whose underlyings are worth 10x more than their entire net worth are playing with fire. Options should always be bought or sold as a proxy for the underlying, not thought of as standalone priced securities, IMHO. I think this is the mental trap that most people fall into when they get screwed by options -- they are seen as just another symbol on their trading platform with a price they can buy and sell. However, they have wildly different dynamics since they are, literally, derivatives.
Of course this leads back to your main point being unchanged: only experts are going to have confidence in knowing what a "fair" price is for a business, so selling options (or using them in general) should be left to such experts.