Academic models. There is a substantial academic literature on optimal techniques for delta hedging, and some of it even deigns to consider whether the techniques under discussion could ever be deployed in the real world.*  I found (Zakamouline 2006) helpful, and chapter 4 of Volatility Tradingby Euan Sinclair offers a thorough and accessible survey of this topic.

I have intentionally avoided endorsing one method over another, because, as is so often the case in options trading, the appropriate method for an individual will depend on her book, her experience, her risk tolerance, the nature of her strategy, etc. The smart way to approach the topic of delta hedging is not as a search for some one right answer, but rather for the best fit given your situation. One issue I haven’t discussed yet is the matter of books with multiple underlying assets: a trader holding options on Google ( ) and U.S. Steel ( ) should not treat their deltas equally. It’s not a problem to hedge at the level of individual products, i.e. buying/selling the relevant shares of GOOG and X as needed, but for larger books this quickly becomes less desirable. One solution to this problem is to beta-weight individual assets to some smaller set, i.e. weighting ( ), GOOG, and ( )options to the Nasdaq 100 and hedging with index products.

Inexperienced traders sometimes tend to pay too much attention to up-front transaction costs and minimize the costs of carrying unhedged risk. Whatever method you use, the most important thing is that you use one. Delta hedging is a fairly advanced topic, but it’s something that every options trader needs to consider.

* I’m calling this the lazy guide to delta hedging precisely because there are no formulas involved. Unless you’re managing a very large book and/or institutional money, you needn’t necessarily bother with the ivory tower approaches. If you do want to geek out, the bibliographies in the links above offer ample opportunity.