Dumb / amateur question : why would one want to view all forms of Options pnl in a "number/percentage of vol points" view? Alternatively, what is wrong with calculating the dollar pnl on all Options positions, including Calendar spreads, etc;? I suppose that to calculate the potential maximum dollar loss on an Options combo when it involves skew + term structure, one needs to address the same issue(s) of how the vol surface will "animate" in the future? Is that why one prefers the IV as a base unit to which one tries to normalize all positions to? "Where was the vol surface?" + "Where is it now?" + "Where were you on the surface (reduced to a single number despite having many points (option legs in a combo) on it)" + "Where are you on it now (single number)"? <-- Is that how you think?
OK, so let's see if I understand this. Say you sell an option. There is a relationship between what IV you sell at and what theta/gamma you sell at. Once you sell an option with a spesific IV or theta/gamma, it's a "lock in". Should you choose to hedge with a lower gamma than the one you actually have, all you do is build up delta risk until expiry. On expiration, the total PnL from doing it this way, is exactly the same as the total PnL from hedging with your actual gamma. Is this in essence the correct understanding? Dollar PnL alone doesn't really say much to me, if anything at all. I have to view in context of IV, theta, gamma etc, so yes, you are essentially spot on with your bottom paragraph...
No. The pnls aren't the same because (as you said) you are building up delta risk. The expected pnl is the same but if you are hedging to the wrong volatility your pnl outcomes are more diverse.
OK, but if expected pnls are the same then I think I understand the essence of it. Obviously real pnl is probably going to be different but for none of the reasons I have listed in my previous posts I assume (which was based on my misunderstanding that deltahedging is what realizes vol spread IV-RV rather than the actual IV the option is sold at initially vs realized RV. Deltahedging being a mere tool to digest directional risk) Thanks for clearing it up. Sometimes I get stuck in a thinking process for hours which is completely flawed until I get outside input. Then you wake up the next morning and realize how ridiculous it was in the first place