About last week you can see MSFT call & put option appears to be resembling volatility smile.
And then I open trade positions on a 4 MSFT long call option contract (all 4 contract with fixed/same strike) & short stock and dynamically hedge each day (only delta hedging) on that portfolio over 2 weeks but I didn't see any loss on my portfolio.
So what is exactly volatility smile risk people talking about, since I didn't experience any loss on my portfolio?
My interpretation about the underlying & options with different strike is like this: People are assuming the implied volatility is same for all options with different strikes because they're mixing the implied volatility (IV) is same as underlying volatility (UV). If the UV is high, and then the IV must be high too.
But in reality both underlying & options with different strikes are traded separately, so each options with different strikes must have their own implied volatility.