I now read the article, and it very well makes sense. The losing does not mean real losing. It is just the effect when shorting options (because you already rcvd the credit). In the opposite case (long) you gain value (ie. that you paid for buying it). So in the end everything is in right parity or equilibrum, so to speak.
Thank you for this link, it is an excellent article for someone new to options. It all make sense to me and Martinghoul is right. First of all I modeled dynamic hedging short puts using Black Scholes and came up with ~ zero profit though each option chain could be slightly positive or negative (I used Excel to program the Black Scholes equations and assumed normal distributions for short durations of ~30 days using a random # generator within the normal function). It is consistent with Black Scholes' original analysis and options pricing theory and supported the Goldman conclusions. You make money only when the option is mispriced and deviated from Black Scholes or the volatility changes significantly during the period of the contract. And I ignored transaction costs. When gamma is negative, you essentially buy high and sell low to maintain delta neutral. When gamma is positive you do the opposite. Am I making any sense? Please comment, especially about my modeling approach. By the way this thread is a great learning experience for me personally, thanks to all.
I don't understand what you are doing. I can only program in Excel (or Fortran if I have a main frame).
Yes, the article is indeed very good. Hmm. IMO you have misunderstood the most important thing of this kind of hedging. Just re-read the article where it discusses the outcome of the long options, and then that of the short options. It's very important to understand the difference. In theory you do profit under very normal conditions, not necessarily with mispriced and deviated prices. You are welcome, I'm learning that stuff too. ET gives a good platform for discussing such studies. Thx also to them.