OK so you want to talk about tax treatment of hedging strategies. IANAL, nor a tax expert of any kind so I will have to bow out as soon as it goes there. I would suggest that if you just want to learn about taxation you don’t need to understand too much about how dynamic hedging works, and certainly not the mathematics behind the pricing of the derivatives!
Dynamic hedging is a very expensive way to hedge risk by trying to keep your hedge up to date. Suppose you buy an asset and a put option at the money. You are now hedged against loss. If you keep that until maturity and then sell the asset you have a static hedge. But suppose when the asset price goes up or down you want to lock in your profits/unlock the value of your hedge – you can sell the put and get a new one at the money. That is an example of a dynamic hedge- always updating the hedge to the most recent market information.
Obviously, in real life a dynamic hedging program won’t be implemented for a silly reason like the example I gave. But what else do you need to know? Assume the people running the program have a good reason for the transactions they make. Essentially, the buys and sells in a dynamic hedging program are not individual transactions but pieces of one large transaction. I don’t think it gets treated that way, though, for taxes.