Definition
Break-even Point (Options)
The break-even point is the underlying price at which an option strategy neither makes nor loses money at expiry.
For a long call, break-even is the strike plus the premium paid; for a long put, it is the strike minus the premium. More complex strategies have two break-evens — for example a long straddle profits only if the underlying moves beyond the strike by more than the combined premium in either direction.
Indian traders calculate break-evens before entering any options trade on Nifty, Bank Nifty, or stocks to know exactly how far price must move to profit. Knowing the break-even relative to the expected move and the India VIX helps judge whether a trade has a realistic chance.
Related terms
- Intrinsic Value vs Time ValueAn option's premium splits into intrinsic value (the real in-the-money amount) and time value (everything else).
- Long StraddleA long straddle buys a call and a put at the same strike to profit from a big move in either direction.
- Strike PriceThe strike price is the fixed price at which an option can be exercised: the level you lock in to buy (call) or sell (put) the underlying.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.