Hi

This is my first post, so not sure if this is the right forum. Please let me know if there is somewhere more appropriate.

I have to explain dynamic hedging for a put option to management and one point I want to make is:

i) When you dynamic hedge you are replicating an option.
ii) The option costs money so dynamic hedging will cost money.
iii) The cost comes in because you have to rebalance and have losses due to gamma.(Buy high/Sell low)
iv) I believe you can estimate your gamma costs by 1/2 sigma^2 x $gamma x t. (Or a formula very similar to this.)
v) So you can think of the cost of an option as the present value of all your future rebalancing costs.

So the question is....conceptually is theta the same thing as point iv)?

I am an actuary by training, so I tend to think of things in terms of expected values of future cashflows and I need to explain things in this way to other actuaries.

Any help would be appreciated.