Pricing & Mechanics
Break-Even Price
Also called: breakeven
The break-even price is the underlying price at expiration where an options position neither makes nor loses money. For a long call it is the strike plus the premium paid; for a long put it is the strike minus the premium paid.
Break-even accounts for the cost of the option, so a call can finish in the money and still lose money if the stock does not clear the strike by more than the premium. Multi-leg positions can have two break-even points, one on each side, as with straddles and iron condors.
Break-even at expiration differs from break-even before expiration: an option retains extrinsic value before expiry, so a position can be profitable earlier at prices that would lose at expiration. Probability of profit is defined relative to the expiration break-evens.
Formula
Long call = K + premium · Long put = K − premium · Short put = K − credit received
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Frequently asked questions
Do I need the stock to reach break-even to make money?
Only if you hold to expiration. Before then, a favorable move or an IV increase can make the position profitable at prices short of the expiration break-even.