macrocephalopod

This is probably incorrect.

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.