What is the break-even price on an option trade?
In one line: The break-even price is the stock price at expiry where an option trade neither makes nor loses money: the strike plus or minus the premium, depending on the position.
How it works
The break-even price is the stock price at expiry where you end up at zero. It's the Strike price moved by the premium.
- Bought a call: strike + premium.
- Bought a put: strike − premium.
- Sold a put (Cash-secured put): strike − premium.
- Covered call: what you paid for the shares − premium.
The premium always moves the break-even in your favor if you sold, and against you if you bought. A buyer needs the stock to move far enough to pay back the premium. A seller gets a cushion of exactly the premium.
Break-even is an expiry number. Before expiry, the option still has time value, so closing early can land you above or below it.
An example (hypothetical)
A made-up stock, XYZ, trades at $50 (an illustration, not a trade idea). Every premium here is $2.00 ($200). The last column shows each position if XYZ ends at $44.
| Position | Break-even | If XYZ ends at $44 |
|---|---|---|
| Buy a $50 call for $2.00 | $52 | Call expires: −$200 |
| Buy a $50 put for $2.00 | $48 | Put worth $6: +$600 − $200 = +$400 |
| Sell a $50 put for $2.00 | $48 | Assigned at $50: −$600 + $200 = −$400 |
| Own shares at $50, sell a $55 call for $2.00 | $48 | Shares −$600, call +$200 = −$400 |
Notice the seller rows. Both have a break-even of $48, two dollars below the price. Below that, every dollar XYZ falls costs $100.
Why it matters for sellers
Break-even is your cushion in one number. If XYZ is at $50 and your break-even is $48, the stock can fall $2 before you lose anything at expiry. Beyond that, you hold the loss.
It also shows how small the cushion often is. A $2 premium on a $50 stock is a short distance. A bad week can cover it.
In the wheel strategy, break-even moves each cycle. Every premium you collect lowers it a little. That running number is your Cost basis. For more worked cases, see cash-secured put break-even and covered call break-even.
Commissions and fees move break-even a little. Add them in if your broker charges per contract.
Questions
Is break-even the same before expiry?
No. Before expiry the option still has time value, so its price is higher than the expiry math. Closing early can lose money even with the stock above your break-even.
How do I find break-even for a cash-secured put?
Take the strike and subtract the premium per share. A $45 put sold for $1.00 breaks even at $44.
Does break-even include more than one premium?
For a single trade, no. If you wheel the same stock, add up every premium you've collected and subtract it from what you paid for the shares.
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