I'll chime in having some experience with retail dynamic hedging....it sucks. As destriero says, ultimately you are only locking in losses because your hedge frequency will increase as the underlying moves against you, and unless you peel the hedges off at breakeven or marginal gain (or marginal loss), you are in effect taking potential gains away from your initial short option position.
The situation you will find yourself in as the underlying whipsaws back to the price you initiated your delta hedge, you'll ask yourself, "okay, take off at breakeven/slight gain/slight loss and see where price goes from here", and then sometimes you get lucky and price continues in your favor and you can take some time to relax and reassess the position. But as we've seen in these choppy markets (and to be more specific, just say your are short ATM puts in ES and delta hedge creating synthetic short straddles or positions similar in nature), price will take out your hedge only to roll over in the afternoon or the next day or the end of the week, forcing your hand and more than likely leading you to lock in losses.
I will say this, ES price action has been favorable to this type of strategy the last few years in the sense that the downside moves have all corrected back to new highs, so when you peel off your delta hedges, price has continued in your favor (it might look like we are in that situation as we speak, but there are a number of recent examples, China August of last year, Ebola october 2014, Congress dicking around with sequester and budget stuff a few years ago, Greece a few years ago, etc. etc.) This is assuming multiple month timeframe positions (2-3 or more) From my point of view, I try to plan for 2000-2003 type market action where the market just kept chopping and making new lows. That is a delta hedge nightmare if you are talking about positions you will keep for say 2-3 months. That's where capitalization/averaging in come into play. You have to have enough bullets to roll for multiple months/years if we have that type of market action. And hopefully you are rolling at what happens to be a yearly VIX high of 50 and your roll is 6 months out and relatively sized up.
To close, you have no idea what you are talking about until you see it first hand, the theory all makes sense, but until you have just closed out of a delta hedge on a 9:45am market ramp and then the thing rolls over into the close forcing you to reapply your hedge and count the losses against the potential profit of the short option at expiration, you don't know what it's really like. I would suggest doing a live test right now, especially if the market rolls over again, you would understand delta hedging first hand.
For what it's worth, everything I'm doing is discretionary price action (read: amateur) delta hedging. I go with what price is doing on the daily and obvious levels in case of short term high vola moves.
