The chart below represents options’ premia levels for 4 different theoretical options that expire in exactly 3 months in order to provide an insight into hedging costs and overwriting yields.

Two types of series are represented:

- Out of the money calls: sold to collect the premium with a relatively low risk of paying the option buyer at expiry. Here we have 200% and 300% calls, i.e. calls with strikes at 2 and 3 times the spot price.
- Out of the money puts: bought for hedging a long position. Here we observe 50% and 80% puts, i.e. puts with strikes at 50% and 80% of the spot price.

The 4 levels are obtained by dividing the options premium by the spot price:

$$ \frac {OP_{K}^{\sigma}}{spot} $$

where:

- \(OP_{K}^{\sigma}\) is the option price at strike K and volatility σ from the Black-Scholes model
- σ is the 3M rolling implied volatility.