I was reading some papers on delta-hedged option returns and came across an intriguing paper that I found quite interesting.
However, I was a bit confused on the authors' methodology of computing option returns for their strategies. For some context, the paper is looking at the returns of a gamma selling option strategy with S&P500 as the underlying. The formula is on page 5 of the paper
They use the following formula:
I found this confusing because I would expect the return of a delta-hedged short option position to be the daily change in price divided by the initial cost of entering the position (just like all other papers I have read on this subject). In this case, they simply divide the daily P&L by the underlying.
Is there something I'm missing?