How Does a Sharp Drop in IV Affect the Hedging Ratio for a Portfolio of ATM Options?

A sharp drop in Implied Volatility (IV) will cause the Delta of At-the-Money (ATM) options to remain near 0.5 but will make the Delta less stable, as Gamma increases slightly for very short-term options. Crucially, the drop in IV causes the options' prices to fall significantly due to negative Vega exposure.

The hedging ratio, determined by Delta, might not change drastically, but the cost of the options themselves will drop. This means a trader short a portfolio of ATM options would see their position value decrease, requiring less capital for the hedge, though the Delta value per option remains near 0.5.