There is much to be learned from examples such as yours, but it needs to be considered far more deeply and no one has thought through what I mean in this thread (probably my fault for not being clear). From Peter Carr. This is what I mean:
of course they do. The new game in town, every failed stock day trader has overnight become an options expert, you did not notice that? Very soon I expect most bucket fx shops to also offer fx options. Look at Saxobank: Do you think that 15-20 pip spreads in even the most liquid option pairs deters some of those idiots from trading them? Promise people lottery like pay offs and you are guaranteed to have takers, from the beginning until the end of human kind. Surprised?
Books tell you that the only unknown in options trading is volatility, and that if you can predict this better than others you will make money. That is a bunch of shit. Look at the above example from Peter Carr. "Volatility" (the actual volatility you experience) depends on your hedging strategy, which in turn depends on the path dependency of the underlying. There is no way to get around trading delta unless you have access to sophisticated instruments like hyper options or [co]variance swaps.
well, thats why a lot of professionals dont hedge greeks based on implied vols but on other measures of vol, a basic example being realized vols. It creates more variability in your p&l curve but makes your final payoff a lot more predictable. Just my 2 cents...
Vols are independently unpredictable. You can plan your derivative position to respond to a change in vol however you like, but the amount of implied vol stuffed in to BS or whatever pricing equation used is a variable without supply:demand, or any other market force. It's simply a stat. For options, you can have expectations regarding how various strikes will react to each other as vol change hits the market. Quants normally allow volatility a wide berth, and rightly so.
+1 better explanation than mine above. It pays to understand to what vol large market making desks hedge and how their "end product" is parametrized. Not in order to be able to replicate or time their moves but to understand how your p/l evolves on delta hedged option strategies, on average being p/l= vega( sigma implied - sigma realized).
I sort of mixed two issues into one and misled by mixing correct gamma/delta hedges when in fact it is all about when and how to hedge, period, not the amount of the hedge. My point and beautifully exemplified by Carr is that depending on your position and how you hedge, you see different volatility, and you are back to trading the underlying. This is true even in model-free scenarios and has nothing to do with stochastic vols.
Even if I believe this could help (I have to think about it) AFAIK, there is no way to back that out from publicly available information. It may be possible to do with P/C ratios and open interest, but only in extremely crude form, imo. The last equation is also something you see in books, but is also grossly incomplete. When and how you hedge is everything when combined with the path the underlying takes.