macrocephalopod

Only way this works is if there is a delay between options being traded and the dealer hedging the delta, which there will not be. The dealer hedges the delta essentially instantaneously, by the time the trade shows up in the indicator the initial delta has already been hedged.

do you? I thought you guys let it run a bit and only hedged out the net exposure to stay within risk limits. you hedge too much and you hedge out all your profits, is it not so? cc: @VolQuant

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.

Mostly from speaking to traders on options desks at big market makers, and extrapolating a bit from there.

wait i thought you were a trade on an option desk at a big market maker, or at least responsible for their maintenance and general upkeep.