I was reading a "trading volatility" by Bennett, the part about replacing a long stock position with calls of equal delta, and it says:
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To me, this sounds like a delta‑neutral position — the convexity should give you gains whether the underlying goes up or down, since if the stock price increases the delta also increases overcompensating the loss in the short stock position and if the stock price drops, the short positions gains linearly while the calls "lose less" because of decreasing delta. So what exactly causes losses here? Is it just theta decay eating away at the position if the stock doesn’t move? Or is there something else at play that I’m missing?
Any help/interpretation is appreciated