there's no problem, there are just still some missing pieces.
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Sure, you have some (reasonably tight) delta limits and you hedge to stay within those to keep turnover down -- no way that the deltas would get big enough *from the initial options trade* to cause a double digit basis point move in the underlying.
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Mostly from speaking to traders on options desks at big market makers, and extrapolating a bit from there.
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Delta-hedging caused by a move in the underlying is a different story, because every option in the book needs to be hedged, not just the most recently traded options. Magnitude of the required hedge for a given size move depends on book gamma (plus vanna, vol skew shape etc)
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oh sure, I think it's measuring the whole book, the new open interest vs. cumulative volume just tells you when liquidity is thin, if I understand correctly. Certainly without the rest of the book... this would be a different story.
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